5 Dividend Picks from Value Investing Legend

Page 1 of 2

Financial stocks had a remarkable year in 2012. Based on the Financial Select Sector SPDR (NYSEARCA:XLF), financials were the best performing sector last year, returning 23.4%. Despite the broad sector’s rally, some financial stocks remain undervalued. With growth prospects of the sector expected to improve in 2013, financials are likely to extend their gains further. The greatest potential for market-beating returns over the medium term have value stocks that pay high dividend yields.

Chuck Royce

Following value investor Chuck Royce’s disciplined value approach to stock selection, investors can identify plenty potential picks to achieve strong income and a value tilt in their portfolios. Based on Royce’s selection of financial stocks that comprise his namesake Royce Dividend Value Svc (MUTF:RYDVX), here is a list of five high-yield financials for 2013. These are high-yielding stocks that among Royce’s financial sector picks hold the largest shares in the noted fund.

KKR & Co. L.P. (NYSE:KKR) is a global private equity firm. Its stock has gained 17.4% over the past 12 months. The partnership’s yield is 6.2% and its payout ratio is 34%. Its distributions in 2012 were 18.3% higher than in 2011. The latest quarterly cash distribution was almost double the combined distributions of the previous two quarters. Nearly two thirds of the latest quarterly distribution came from carried interest, the partnership’s share in the funds’ profits. In fact, according to an Oppenheimer analyst, in 2013, KKR should have “a higher percentage of its private equity assets under management in a ‘cash carry’ mode than most of its peers.” Thus, distributions increases can be expected. KKR’s private equity funds gained 20% and its balance sheet investments added 22% in the first nine months of 2012 over the same period a year ago. The partnership is diversifying into credit, real estate, and hedge funds. Trading at 5.3x trailing and 6.8x forward earnings, KKR is cheaper than its peers. The partnership is popular with Arial Investment’s John Rogers.

Federated Investors Inc (NYSE:FII) is an asset manager offering a broad range of income-oriented funds. FII has rallied 34% over the past 12 months. Its dividend yields 4.5% on a payout ratio of 57%. Its regular dividends grew, on average, by 6.8% annually over the past five years, but the quarterly payout has been flat at $0.24 per share since 2008. In November 2012, the company paid a special dividend of $1.51 per share. FII’s long-term annual EPS CAGR is forecasted at 6.5%. Recently, the company has been surprising to the upside. Still, some concerns remain about the possible adverse impact on FII’s operations from the long-heralded money market reform that will aim to emphasize to investors the risks inherent in investing in money market funds. There are concerns investors will avoid money market funds, putting their money into banks. Federated receives 40% of its total revenue from money market funds. In terms of valuation, FII has a price-to-book below its historical averages. It is attractive based on the forward P/E of 11.6x, representing a 20% discount to its peer group. Fund manager Tom Gayner (Markel Gayner Asset Management) is a buyer of this stock.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 44 percentage points in 21 months Learn how!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!