New Media (Media) at 10.0%
New Media Investment Group Inc. (NYSE: NEWM) may sound new, but this $730 million market cap new media company operates small newspapers and other circulations with a property count of more than 600. Its revenue of $322.9 million was up 2.6% in the second quarter from the prior year, and the $0.35 per share dividend is against income of $14.9 million, if you back out the company’s charges. Digital revenue has grown while the existing papers decline. This $1.40 per share annualized payout and the $13.85 share price generate a yield of just over 10%. New Media Investment Group has a 52-week trading range of $11.87 to $17.19 and a consensus price target of $16.67.
The company announced in 2016 that it was raising $120 million in new capital to fund acquisitions and other uses. That almost certainly has to include dividend payments, after giving an upbeat tone to how it sees its markets ahead.
NuStar Energy (MLP) at 10.7%
NuStar Energy L.P. (NYSE: NS) is an MLP engaged in terminalling, storage, transportation and marketing of energy products, and it has a market cap of about $3.8 billion. At $40.98 share, it has not been immune to energy and MLP woes, but the current $4.38 distribution generates a yield equivalent of 10.7%. It has a 52-week range of $37.30 to $55.64, and the consensus target price is $49.44.
Wells Fargo is more conservative than consensus here, and it lowered its distributable cash flow per unit to $3.56 in 2017 and $4.08 in 2018, but it still had a $47 target after earnings in August.
PennyMac (REIT) at 11.0%
PennyMac Mortgage Investment Trust (NYSE: PMT) is a $1.1 billion California-based specialty finance company taxed as a REIT that invests in residential mortgage loans and mortgage-related assets via direct investing and via correspondent production. Its $0.47 quarterly dividend per share generates an 11% yield, based on its $17.00 share price. That being said, the payout was $0.61 per quarter in 2015 and was well above $0.50 prior to that. Its latest book value per share was $20.04, and its return on average common equity was 8%.
PennyMac has a 52-week range of $14.28 to $18.46. While its consensus target price of $16.90 is under the current price, Credit Suisse has a $19 target price and believes that portfolio asset sales could juice its earnings up.
Prospect Capital (BDC) at 10.7%
Prospect Capital Corp. (NASDAQ: PSEC) is a business development company (BDC) with a $2.4 billion market cap that specializes in many stages and sizes of companies. The BDC also invests in multi-family residential real estate deals and will co-invest in larger deals. At $6.72, its 52-week range of $6.54 to $9.58 should show that it has been under pressure. Please note that Prospect Capital did recently lower its distribution and the new $0.06 per share monthly payout is significantly lower than the prior month — but it still generates a yield of 10.7%.
The consensus analyst target price is $6.50, but BMO Capital Markets has a $7.00 target. Prospect’s net investments turned negative and some of those trends may persist, but even after declining its net asset value was last seen at $9.32 per share.
Waddell & Reed (Finance) at 10.0%
Waddell & Reed Financial Inc. (NYSE: WDR) is a financial planning company that dates back to 1937 and claims more than 3,500 financial advisors and $80 billion in assets under management. Kansas-based advisory firm’s assets under management have been in decline. Its $0.46 quarterly dividend ($1.84 annualized) per share has risen over the years, and that currently generates a 10.0% yield based on its $18.32 share price. Waddell & Reed has a $1.5 billion market cap, with a 52-week trading range of $15.02 to $22.45 per share.
The consensus analyst target price of $18.00 is just under the current share price, but Evercore ISI and Jefferies have $19 price targets. The consensus earnings estimate is just $1.44 per share in 2017 and $1.57 per share in 2018, so that could imply some dividend pressure ahead, if you want to consider the risks.
As a final reminder, we have tried to point out the specific risks or general industry risks on each of these entities, on top of just focusing on their yields. Very few of these entities would come even remotely close to passing the traditional “widows and orphans” suitability tests.