Investors who refuse to take major risks by staying in cash or money market accounts are likely to have little to show for it over the next few years by playing it "safe". In fact, after taking into consideration the effects of taxes and potential inflation, the returns could even be negative. Investors who are willing to take on some risk, often choose to go with large-cap dividend stocks.
This has pushed up the price of many stocks to new 52-week highs recently, but this has also caused yields to drop. For example, Pfizer Inc. (PFE) now yields just 3.7%, Chevron Corporation (CVX) yields even less at 3.2%. CononcoPhillips (COP) is a favorite energy dividend stock ,and at 4.7%, it provides one of the highest yields in the energy sector. However, investors who are willing to take on what might be more risk, could end up with a yield that is double or even about triple what these more traditional dividend stocks will pay.
Here is a closer look at one stock that offers a yield of about 12%, and is seeing heavy insider buying recently:
MCG Capital Corporation (MCGC) is set up as business development company. It focuses on providing capital to smaller and mid-sized companies. MCG targets companies with annual revenues of $20 million
to $200 million and earnings before interest, taxes, depreciation and amortization (EBITDA) of between $3 million and $25 million.
MCG Capital makes debt and equity investments in companies in order to facilitate management buyouts, recapitalizations, acquisitions, growth, as well as to provide working capital. Since 1990, this company has participated in over 600 financial transactions with a total value of over $6 billion. It makes debt investments through senior and subordinated securities, and equity investments through preferred stock, common stock, and warrants.
MCG Capital invests in a wide range of industries, which include healthcare, business services, media, consumer products, manufacturing, electronics, and many more. The portfolio of companies it has invested in include: Broadview Networks Holdings, Inc., (which offers voice and data communications and managed network solutions), Northeast and Mid‐Atlantic United States GMC Television Broadcasting, LLC (a CBS‐affiliated television station, in Hawaii), Intran Media, LLC (which provides nationwide truckside advertising services), Jet Plastica Investors, LLC, (which provides disposable plastic ware for the quick‐serve food industry), Orbitel Holdings, LLC, (a cable services operator in Maricopa, Arizona), and many more.
This company is buying back stock, which is another sign that it is undervalued. In the quarter that ended on June 30, 2012, it repurchased about 2,687,476 shares of common stock at a total cost of $11.7 million, at an average price of $4.36 per share.
One insider has been buying plenty of stock: On August 29, 2012, Richard Neu, (the CEO), purchased 31,345 shares in a transaction valued at $143,874. Just a day earlier, he bought 72,577 shares in a
transaction valued at $329,478. On August 9, he also about 78,432 shares in two transactions (on the same day), which had a total value of about $341,000. This brings the total value of the transactions in just August alone, to over $800,000.
With a yield of about 12%, and with the CEO and the company buying this stock on the open market, it could make sense for investors to buy this stock, especially on dips.
Here are some key points for MCGC:
- Current share price: $4.65
- The 52-week range is $3.40 to $5.08
- Earnings estimates for 2012: 28 cents per share
- Earnings estimates for 2013: 46 cents per share
- Annual dividend: 56 cents per share, which yields about 12%
Data is sourced from Yahoo Finance.
Disclaimer: No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.