Good Dividends From These Asset Managers
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Asset management companies are a funny bunch. Their purpose is to invest people's savings for maximum profit, but I've found that you can also invest in the companies themselves like you can with other businesses. It's a little weird to think about, but I guess it's the same as investing in a casino. You don't get paid when any particular gambler loses, but you do get a percentage of the house's take. It's all about profiting from fee income and the percentage of a business or loan that the asset manager itself owns.
Within that, for me, it's all about the dividends. I found a few potentially promising possibilities, though sadly only one's name begins with the letter P.
A Strong Shape
Triangle Capital (NYSE: TCAP) is a bit unusual in the asset management category, as they don't take an ownership role in the companies they work with. Triangle generally works to sell a company on behalf of its owners, and part of its fees cover the development and implementation of suggestions that will hopefully make the companies more saleable. Triangle also deals with fund-raising for growth and recapitalization purposes. I like how Triangle is a lean and mean company just under the $700 million market cap that manages to earn 68% profit margins. While it's not a super deal at a 1.6 price/book, I adore the 8.3% dividend and the prospects for growth this company shows off.
Oak Is Pretty Solid
Oaktree Capital (NYSE: OAK) works in risk-controlled, non-traditional investing strategies where the object is often a distressed business or property. Considering that a lot of high-yield investments tend to carry a considerable amount of risk, Oaktree has positioned itself well as a comparatively safe bet for market investors. Trading at 4.5 times book value and 36 times earnings, it's not a super deal, but Oaktree still pays a 5.3% dividend and rocks 29.5% margins. One concern I tend to have when it comes to distressed anything is the amount of expertise required to keep the business operating. If that expertise ever falters, such as if the best and brightest move on to greener pastures, a company of this nature can quickly find itself toppling as a result of the brain drain.
One Stop Shopping
Federated Investors (NYSE: FII) offers all kinds of income-related mutual funds for all kinds of different investor needs. Regardless of your focus, there's probably a fund amongst the 158 this company offers that'll fit you. But I'm more interested in whether this will do well if you just buy part of Federated itself. I like that Federated is a reasonably large company at a $1.98 billion market cap, though I'm not too keen on the 3.2 multiple over book value. The 11.67 P/E ratio is pretty good, but I wish Federated could pull profit margins higher than its 19.1%. Given the 4.9% dividend, I think Federated is a pretty good company that could do better. This might be a case of one company trying to do too many things at once, where spinning off some of its operations might be beneficial.
I admit it, I saved the best for last. Prospect Capital (NASDAQ: PSEC) specializes in financing and buyouts related to industrial and energy companies. I appreciate its humble .9 times price/book, its lean 6.76 P/E and its focus on two specific industries. Focus has obviously done well for Prospect since they're rocking 50.9% profit margins and can still pay an 11.7% dividend. Overall, on first glance I really like this company.
Remember Where the Profits Come From
I love dividends, but I hate when they dry up. A big part of keeping your dividends stable for a long time is knowing where the money's coming from. I like the group we just talked about because of the vast differences between their customer bases. Not that I'd build a portfolio out of one sector or a small handful of companies, but this is a reasonable starting point for your own research.
pongun has no positions in the stocks mentioned above. The Motley Fool owns shares of Federated Investors and Oaktree Capital. Motley Fool newsletter services recommend Federated Investors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.