2 High-Yield Plays On My Radar

Includes: AYR, BX
by: Bret Jensen


High-yield stocks and sectors have outperformed the overall market in 2014, as equities have been become more volatile.

These high-dividend stocks still look like good plays given their reasonable valuations and a less robust market environment in 2014.

Below are two high-yield plays that have been in the news recently and look attractive at current levels.

My portfolio has been heavily tilted towards high-yield stocks and sectors since late last year. After 2013's huge rally, I believed the market was overextended, and there was value and safety in these high-yield sectors & stocks.

The strategy has performed well over this time frame, as the market has become more volatile and money has fled high-momentum stocks and sectors. I have been picking up some growth at a reasonable plays on pullbacks such as Gilead Sciences (NASDAQ:GILD) and Visa (NYSE:V). However, I am always on the lookout for additional attractive plays in the high-yield space. Recently, two high-dividend stocks have popped up onto my radar.

Aircastle (NYSE:AYR) handles leases and sales of high-utility commercial jet aircraft to passenger and cargo airlines worldwide. The company also makes investments in various aviation assets, including debt investments secured by commercial jet aircraft.

The shares have gotten on my radar as Benzinga ran a story today that a Japanese trading group "Marubeni" continues to add millions of dollars worth of shares, and Aircastle is a possible takeover target as well.

The industry continues to grow as emerging markets are seeing increasing demand for air travel. This is powering a secular trend of more airliners being leased, as banks remain reluctant to lend directly to some of these emerging market airlines. Other more established airlines are also moving to an "asset-lite" model. Around 40% of the overall $100B annually spend on new commercial airliners is through this type of leasing activity. This percentage is likely to grow.

The shares of Aircastle yield a solid 4.3% at current levels. The company's earnings trajectory is also impressive. After posting ~40 cents a share of profit in FY2013, the current consensus calls for Aircastle to triple its earnings to over $1.20 a share this fiscal year. Projected FY2015 EPS is sitting at just under $2 a share. This bodes well for future dividend increases, if company posts earnings as expected, and the shares are cheap at just 9x fiscal 2015's projected EPS.

The Blackstone Group L.P. (NYSE:BX) is a publicly-owned investment manager. The firm also provides financial advisory services. Blackstone provides its services to public and corporate pension funds, academic, cultural, and charitable organizations. The firm manages separate client focused portfolios. It also manages private equity funds, real estate funds, funds of hedge funds, and credit-focused funds for its clients.

The company has been in the news for a couple of reasons recently. Blackstone easily beat top and bottom line expectations when the company reported earnings last week. Earnings were up 30% year-over-year. Today, it was named as one of the top 50 stocks with at least $3B in market capitalization to own for upside by Citigroup. Of the top ten stocks on the list with potential upside, Blackstone has the highest dividend yield.

This was the fifth straight quarter that Blackstone has beat bottom line estimates, and the shares yield a robust 4.5%. I would expect earnings estimates to be revised up on this strong quarter. Currently, the shares go for just ~10.5x trailing earnings. The stock has a five-year projected PEG of under 1 (.46).

Both of these high-yield stocks look attractive at current levels. I will be looking for the next break in the market to add either of these cheap dividend stocks to my income portfolio.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AYR, BX over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.