Income Investors Shouldn’t Ignore APO Stock (NYSE:APO) Currently Yielding 6.05%
APO Stock Rewards Shareholders with a High Dividend Yield
Earning a high dividend yield is a great way to generate a source of income without selling your shares. This investment strategy has many other benefits a well, such as no commission costs to hurt your net worth and not needing to time the market to buy low and sell high.
An opportunity to receive a high dividend yield can be found via Apollo Global Management LLC (NYSE:APO) stock, with shares currently offering a dividend yield of 6.05%. This yield is nearly triple that of the S&P 500 Index, the benchmark used to determine if a stock sports a high dividend or not. The companies on the index are those that investors tend to focus on, and with good reason: they’re the 500 largest companies trading on the U.S. exchanges based on market cap.
So with that said, let’s take a look at how Apollo generates their revenue in order to pay out a high dividend yield.
Apollo Global Management is an alternative investment manager involved with private equity, credit, and real estate. The company raises, invests, and manages funds on behalf of clients, which include individual investors, pension funds, endowments, and sovereign wealth funds.
The private equity side of the business invests in controlled equity, related debt instruments, convertible securities, and distressed debt investments. The credit business unit invests in non-controlled corporate and structured debt instruments, as well as stressed and distressed debt investments. Lastly, the real estate segment invests in real estate equity for the acquisition and recapitalization of real estate assets. Investments are also made in portfolios, platforms, and real estate companies through real estate debt, mortgages, loans, preferred equity, and commercial mortgage-backed securities.
Apollo’s investment strategy is to look at value-oriented investments with a contrarian view, focusing on investments that are out of favor but have growth to look forward to. And since the investments are out of favor, they are purchased at a cheap valuation. This investment strategy requires patience from the company before and after capital is deployed.
Get Paid a Steady and Growing Dividend
APO stock began trading on the public markets in 2011 and has been paying out a dividend ever since. The first quarterly dividend was paid out in June of that year and amounted to $0.22 per share. Today, the dividend is still quarterly, but now $0.49 per share is paid to investors. Over this six-year period, the dividend has grown 122%.
That said, higher dividend yield is possible. The first way is by using a buy-and-hold strategy. As the dividend sees an increase, so does the average dividend yield, since the yield is calculated by dividing the annual dividend by the purchase price of the shares.
The second way is by history repeating itself. Since 2012, Apollo has rewarded shareholders with nine special dividends. These payments were made on top of the normal quarterly dividend, adding to the dividend yield.
Both the dividend growth and special dividend have occurred in the past, but why be confident they’ll happen again? Well, for starters, there’s Apollo’s payout ratio of 46%, or a $0.46 payout from every $1.00 of earnings. This provides a nice cushion to increase the dividend or hand out a special one when there are no other investment opportunities. that take priority.
The company’s expected earnings are also a good sign. In the past, as the earnings grew, so did the dividend, and the future is forecasted to be no different. Below are the actual earnings from 2015 and 2016, as well as the estimated earnings for 2017 to 2019.
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Lastly, the company has a large cash balance to fall back on–just north of $1.0 billion, or approximately 20% of its total market cap. This has historically enabled both dividend hikes and special dividends. (Source: “Apollo Global Management, LLC CI A,” MarketWatch, last accessed June 15, 2017.)
APO stock is also highlighted by its cheap–and therefore attractive–price-to-earnings (P/E) ratio of 9.0 times. Calculated by dividing the stock’s trading price by annual earnings, this metric provides insight into how much of a multiple is being paid for the company’s earnings. A low P/E ratio is always preferred.
APO stock is considered cheap in comparison to its industry peers, which have similar margins and are subject to the same market conditions. This makes the comparison a good way to assess an investment, because it ignores the market cap and past performance of the stock. In comparison to APO stock’s P/E of 9.0, the industry average is 21.4.
Normally, when a company is trading at a lower valuation, it is because of a lack of growth. However, this is not the case for Apollo, which is in fact growing at a faster rate than the competition. For proof, look no further than the company’s return on investment, which is almost five times the industry average.
Even more evidence that the company is operating very efficiently is its profit margins, which are nearly double the industry average. This means that, even after accounting for business costs, there is a lot more the revenue left over on a percentage basis.
I believe the market is ignoring Apollo because of its market cap size of one-eighth.
Final Thoughts About APO Stock
APO stock is a great example of a company that is shareholder-friendly, prioritizing investors.
The high dividend yield on APO stock means an income source the could be used for a variety of investment goals, be it supplemental income, saving for early retirement, or an emergency fund.