Medley Capital Corporation (MCC) is set up as a business development company and it focuses on finance. It provides debt and equity capital to small and medium sized companies for a range of purposes including growth, acquisitions, refinancing, etc. When providing debt financing it often makes first lien senior secured loans, and second lien secured loans. When making debt or equity investments it can also receive warrants which allows it to benefit from the potential of a rising share price. This company uses the earnings it derives from interest on the loans it makes, and the capital appreciation on equity, to pay shareholders a very generous dividend yield. Medley Capital invests in a wide range of industries. This provides diversification which reduces risks for the company and shareholders. Here are a few reasons why investors should consider this high-yielding stock:
1) Analysts at Zacks Investment Research recently upgraded the stock to a buy rating. Upgrades from analysts can increase investor interest and boost the share price.
2) The Dividend Rank Report created by the Dividend Channel recently said Medley Capital shares made its list of top ten dividend paying stocks in the financial sector. It cited strong valuation and profitability metrics, plus the high dividend yield.
3) Medley Capital has a book value of $12.60 per share. Most stocks trade for a significant premium over book value, so this is another sign that the stock is reasonable, if not undervalued as it trades for just $13.33 per share.
4) Many well-known dividend stocks have seen huge runs in the stock price as investor demand for almost anything that produces yield has been pushed higher. Because of this, the yields for many stocks just aren't that attractive anymore, especially when considering the risks of owning stocks. For example, Exxon Mobil (XOM) yields just 2.6%, Merck & Co (MRK) comes in with a 3.9% yield, and ConocoPhillips (COP), as one of the top-yielding energy stocks provides a yield of 4.7%. While these yields certainly beat what a savings account will pay, investors who are willing to dig deeper and invest in smaller companies like Medley Capital, could earn multiples of what many popular stocks payout. When you consider that Medley Capital can offer an 11% yield, and that Exxon yields about 2.6%, it's easy to see that it could take around 4 years worth of dividends from Exxon to provide what Medley might offer in a single year. Looking at the next 5 years, Medley Capital could pay dividends that offer about 55% returns, and that certainly beats many other investment options.
Here are some key points for MCC:
Current share price: $13.33
The 52 week range is $8.67 to $13.41
Earnings estimates for 2012: $1.31 per share
Earnings estimates for 2013: $1.45 per share
Annual dividend: $1.44 per share which yields about 11%
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.