BGC Partners, Inc.: Does This 10.2% Yielder Deserve an Upgrade?
This Double-Digit Yield Looks Interesting
In today’s column, I want to talk to you about one of the most overlooked double-digit yielders in the current stock market, BGC Partners, Inc. (NASDAQ:BGCP).
Headquartered in New York City, BGC Partners is a global brokerage company serving the financial and real estate markets. Because the company primarily serves institutional clients, most people have never heard of it. But as I said, the sheer size of its dividend stream deserves investor attention.
Paying quarterly dividends of $0.14 per share, BGCP stock offers a staggering annual yield of 10.2%.
Of course, a double-digit yield in this day and age does not seem like the safest bet. And frankly, BGCP is not exactly the perfect dividend stock. Last year, the company earned an adjusted net income of $0.69 per share. While the amount represented a 7.8% increase from the $0.64 per share earned in the prior year, it was less than the company’s total dividends of $0.72 per share declared and paid in 2018. (Source: “BGC Partners Reports Fourth Quarter and Full Year 2018 Financial Results,” BGC Partners, Inc., February 14, 2019.)
This year, though, dividend coverage seemed to have improved. In the first quarter of 2019, BGC Partners’ adjusted earnings came in at $0.18 per share. The amount was in excess of the company’s quarterly cash distribution of $0.14 per share. (Source: “BGC Partners Reports First Quarter 2019 Financial Results,” BGC Partners, Inc., May 7, 2019.)
Now, careful readers may have noticed that this year’s quarterly payout of $0.14 per share seems to be lower than last year’s ($0.72 paid in 2018 divided by four equals $0.18 per share on a quarterly basis). However, that was not the result of a dividend cut.
You see, BGC Partners spun off its former subsidiary, Newmark Group Inc (NASDAQ:NMRK), last year. On November 30, 2018, BGC Partners shareholders received 0.463895 of a share of Newmark stock for every one share of BGCP stock they owned.
In a press release that updated the company’s post-spin-off outlook, BGCP said that its quarterly dividend of $0.14 per share, “combined with Newmark’s quarterly dividend of $0.09 multiplied by the 0.463895 distribution ratio, would have been approximately equal to the quarterly dividend of $0.18 per share paid by BGC for each quarter of 2017 and 2018.” (Source: “BGC partners Updates Its Post-Spin Outlooks for Full Year 2018,” BGC Partners, Inc., December 20, 2018.)
The best part is, the company’s business has been growing. In the first quarter of 2019, BGC Partners generated $544.8 million of revenue, marking a 3.8% increase year-over-year.
Note that the company achieved this top-line growth despite lower industry volumes, volatility, and foreign exchange headwinds due to a strengthening U.S. dollar. Excluding the impact from the exchange rate headwinds, BGC’s first-quarter revenue, “would have been at least $14 million higher.” (Source: BGC Partners, Inc., February 14, 2019, op. cit.)
Furthermore, in BGC’s first-quarter earnings release, management said they expect the company to earn between $515.0 and $555.0 million in revenue in the second quarter of 2019, which at the midpoint would mark a sizable increase from the $491.0 million in revenue generated in the year-ago period.
Last month, BGC’s management updated their outlook and said that they expect the company’s second-quarter revenue to come in above the midpoint of its previous guidance range. Moreover, they also expect BGC’s second-quarter pre-tax adjusted earnings to be above the midpoint of their former guidance range of $89.0 to $105.0 million. (Source: “BGC Partners Updates Its Outlook For The Second Quarter Of 2019,” BGC Partners, Inc., June 27, 2019.)
The Bottom Line on BGC Partners, Inc.
BGC Partners, Inc. offers a very generous dividend policy. While its dividend coverage was less than stellar last year, it has made some solid progress in 2019.
If the company can continue to grow its business and out-earn its dividend, BGCP stock’s 10.2% yield could get an upgrade.