Published Tue, 22 Sep 2015 11:00 CET by DividendYields.orgDividend investing is an excellent strategy for big gains over time. While it doesn’t provide the instant capital appreciation of short-term investments and it may become boring in a rising bull market, it guarantees a steady investment strategy that can greatly benefit your portfolio. The question is: how do you select the best dividend paying stocks? Regardless if you’re a novice or a large-scale investor, the two key determinants when it comes to selecting the right dividend stock for your portfolio are the stock’s long-term prospect and its financial/valuation metrics.
This article discusses three low debt, high-yield dividend paying stocks trading in the asset management industry. The analysis shows that the average D/E ratio of all three companies is 0.69, whereas their average dividend yield amounts to 12.32%, justifying that when a stock has a long-term growth potential and strong financials, it can generate a steady stream of income for its shareholders. Also, the average Debt-to-Assets (D/A) ratio is 0.38 for all three companies, suggesting that they are not using too much debt to finance their assets.
The D/A ratio indicates the proportion of a company’s assets that are being financed with debt, rather than equity. The D/A ratio is used to determine the financial risk of a business: a ratio greater than 1 shows that a substantial proportion of assets are being funded with debt, while a low ratio indicates that the majority of asset funding is coming from equity.
All three stocks are trading at an average beta of 0.94, which makes them safe for investment.
Nasdaq Year-to-Date Stock Performance Graph" alt="Apollo Investment, Fidus Investment and Prospect Capital versus Nasdaq Year-to-Date Stock Performance Graph">
Apollo Investment Corporation (Nasdaq: AINV), a New-York based investment management company that provides traditional and alternative financing solutions to middle-market companies, is currently trading at a price of $6.00 and has a market cap of $1.42 billion. For investors that focus on high-yield stocks, AINV seems like a good bet as the stock has a dividend yield of 13.33% with an annualized dividend of $0.80. On the downside, the company has a high payout ratio, mainly justified by its low EPS of $0.09. The good news is that analysts forecast an average EPS of $0.85 over the next two years, which will bring the payout ratio down to 94.1%, closer to its peers as well. Additionally, analyst consensus estimates an average annual earnings growth of 5%, whereas the company’s D/A ratio is only 0.40.
Fidus Investment Corporation (Nasdaq: FDUS) is an Evanston-based investment company that specializes in debt and equity capital investment primarily in lower middle market companies operating in a wide range of industries in the U.S. FDUS is currently trading at $14.29 with a market cap of $231 million. The stock has slightly underperformed the market, down by 0.90% in the last month and -3.77% YTD. The FDUS’ low D/E ratio is in line with the company’s low payout ratio, due to an EPS of $1.63, which is expected to average $1.64 up to 2016. The company’s dividend yield amounts to 10.92% with an annualized dividend of $1.56, whereas the company’s D/A ratio is 0.43. Analyst consensus estimates an average annual earnings growth of 8% for the next five years.
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Prospect Capital Corporation (Nasdaq: PSEC), a New-York based investment company with a focus on mezzanine finance, private equity, emerging growth and buyouts of industrial and energy companies, has a market cap of $2.79 billion, currently trading at a price of $7.86. According to analysts that follow PSEC, the short-term price target is $9.79, with a higher end of $12 and a lower end of $8. This is further sustained by PSEC’s price performance, up by 8.41% in the last month, and only -4.83% YTD. So, the stock shows momentum. In terms of financial analysis, the long-term debt represents 58% of the company’s total equity and 32% of the company’s total assets. Although the D/E ratio is well below 2, PSEC’s payout ratio is quite high due to the low EPS of $0.97. On the upside, the average EPS up to 2017 is $1.02, whereas the company delivers an annualized dividend of $1. This generates a dividend yield of 12.72%, which is well above the magic mark of 3%.
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Articles featuring Apollo Investment (AINV):
Prospect Capital's Detailed Dividend And NAV Sustainability Analysis - Part 1 (Includes Remaining Fiscal Year 2019 Monthly Dividend Projection)Author's Note: This two-part article is a very detailed analysis of Prospect Capital Corp.'s (PSEC) dividend and net asset value ("NAV") sustainability. I have continued to cover this "in-depth" topic due to the number of readers who have specifically requested such an analysis be performed on PSEC at periodic intervals. There was an even greater number of requests for this specific analysis this quarter due to PSEC's recent earnings report. For readers who just... Read more
Main Street Capital's NAV, Dividend, And Valuation Compared To 14 BDC Peers (Post Q2 2018 Earnings) - Part 2Author’s Note: PART 1 of this article analyzed Main Street Capital Corp.’s (MAIN) recent quarterly results and compared several of the company’s metrics to twelve other business development company (“BDC”) peers. PART 1 helps lead to a better understanding of the topics and analysis that will be discussed in PART 2. The link to PART 1’s analysis is provided below: Comparing Main Street Capital's NAV, Dividend, And Valuation To 12 BDC Peers (Post Q2... Read more