The secret financial stock with a 7.8% yield

The incredible string of high returns from this private equity and investment consulting firm has led to an eye-popping stream of income for shareholders.

By StreetAuthority Apr 12, 2013 5:10PM
Image: Arrow Up (© moodboard/Corbis)By Michael Vodicka                                            

All industries
are dominated
by the biggest and most successful companies. In technology, there is Google (GOOG) and Amazon (AMZN). In energy, companies such as ExxonMobil (XOM) and Conoco Phillips (COP) reign supreme.

But every once in a while, a new guy comes along and shakes things up. And that's what's happening in the private-equity space right now. Since the 1980s, this industry has been dominated by stalwarts such as the Blackstone Group (BX) and Kohlberg Kravis Roberts & Co. (KKR). But the newest player in the private-equity scene is burning up the charts and putting its competition to shame.

In fact, this company's investments have been so successful, shares have been surging higher -- up 110% in just the past 12 months. 

Take a look at the chart below.



The stock I am talking about is Apollo Global Management (APO), a private-equity and investment consulting firm that was founded in 1990 but went public only two years ago. Led by billionaire private-equity mogul Leon Black, the company has put together an impressive string of investments that have produced big returns.

In early April, the company said it stands to make a five-fold return on its investment in the Puerto Rico-based payment processor Evertec, with an initial public offering (IPO) scheduled for mid-April. Apollo purchased 51% of Evertec 2010 for $184 million; that investment is now valued at $700 million, which doesn't include another $160 million Apollo has received in dividends.

Apollo has seen incredible returns on other investments as well, with its NCL Corp. (NCLH) IPO up more than 60% and Realogy Holdings Corp. (RLGY) IPO up more than 40%. 

The firm's current private-equity pool, Apollo Investment Fund VII, was producing a net 26% internal rate of return at the end of 2012 -- after capitalizing on distressed opportunities created from the 2008 financial crisis, according to Bloomberg. Apollo's $10.1 billion Fund VI, invested during the 2006-08 surge in buyout transactions, carried a 9% return rate.

Those amazing returns have already had a big effect on Apollo's bottom line. But looking forward, its stellar track record is fueling huge gains in assets under management, up 51% last year. More assets under management will enable Apollo to pursue more deals, add leverage and increase management and performance fees. Those are all key revenue and profit drivers for private-equity and investment management companies. 

Apollo's incredible string of high returns has also led to an eye-popping stream of income for shareholders. In the past year, the company has returned a total of $6.5 billion in dividends to investors. Analysts are projecting a full-year distribution of $2 in 2013, which would translate into a dividend yield of 7.8%. That's more than four times the 10-year Treasury note's yield of 1.9%.

Despite all the good news, an outsize dividend yield and past-year gains, Apollo still looks undervalued. The company's forward price-to-earnings (P/E) ratio of 8 is a sharp discount to its peer average of 13. That looks even better compared with the S&P 500's 14.

Risks to Consider: Apollo had a banner year last year, with a number of big-money projects and investments that exceeded expectations. Although earnings, valuation and yield look good, that strong performance could be difficult to replicate.

Action to Take:  Apollo Global is the new player on the block in the private-equity space, after going public just two years ago. The company's impressive string of returns has enabled it to grow earnings and support an outsize dividend yield, lifting shares to new heights. 

Michael Vodicka does not personally hold positions in any securities mentioned in this article. 

More from StreetAuthority
7Comments
Apr 12, 2013 9:37PM
avatar
This article is a piece of junk.  APO went public two years ago at 18, crashed to 10 - twice - then zoomed up to 24.  It's dividend has been up and down like a yo-yo, giving zero evidence that the recent dividend increase can be sustained.  Looks like the investment advisors guessed right a few times after guessing wrong several times.  Even a stopped watch is right twice a day!  The author Mr. Vodicka is either on someone at APO's payroll or just plain gullible.  
Apr 13, 2013 4:54PM
avatar
When APO establishes a track record in three years this article may be relevant.  I have to agree with DesertRat that most of the gains have been over the past 6 months where the Dow also had a spectacular 30% increase.  This rise is not abnormal considering that over two thirds of APO's assets are leveraged.  With this much debit it is not surprising that the P/E ratio is below industry and  market standards.  In addition the article points out that this stock is dependent on one entity making the right decisions.  Perhaps a place for some mad money but nothing I would want to get serious about for awhile.
Apr 14, 2013 12:01PM
avatar
I have some closed end funds that pay more than and pay momthly.
Apr 13, 2013 5:30PM
avatar
What financial stock is actually a bargain? We have Bernanke putting $85 Billion into the markets each month. Every hunk of turd in the latrine rises after the golden shower. Let us know when you come up with something not influenced by Bernanke. When the spigot closes, every pariah loses everything in the next minute.
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123
123 rated 1
262
262 rated 2
480
480 rated 3
651
651 rated 4
649
649 rated 5
629
629 rated 6
616
616 rated 7
496
496 rated 8
346
346 rated 9
111
111 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
EXCEXELON CORPORATION9
TAT&T Inc9
VZVERIZON COMMUNICATIONS8
CTLCENTURYLINK Inc8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.