Medley Management Inc (NYSE:MDLY): Unique Investment Opportunity Paying 14.1%
High-Dividend Stock with a Double-Digit Yield
Investing in middle-market companies in the United States can be a very lucrative business. The thing is, for the most part, that sector was dominated by big banks. Now, thanks to the consolidation of the banking system, and thanks to regulatory headwinds, banks have significantly reduced their presence in middle-market lending, meaning that small investors can get a piece of the action too.
Case in point: Medley Management Inc (NYSE:MDLY) is an alternative asset management firm with a focus on providing capital to America’s middle-market companies. Headquartered in New York City, the company uses its expertise to provide yield solutions to retail and institutional investors.
Right now, the company has more than $5.0 billion in assets under management in two business development companies, a credit interval fund, and a few private investment vehicles. These are high-yield instruments. But today, I would like to focus on the asset manager itself.
The reason to consider Medley Management Inc is simple: paying $0.20 in dividends per share on a quarterly basis, the company offers an annual yield of 14.1%.
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In a market where a five percent dividend is considered high yield, MDLY’s double-digit payout could go a long way toward boosting the return of an income portfolio.
Moreover, by specializing in middle-market lending, Medley Management provides a unique investment opportunity. Twenty years ago, banks were responsible for providing more than 70% of financing to middle-market companies in the U.S.; today, their share has dwindled to just 10%. Due to the high-yield nature of the business, more and more investors—including insurance companies, pension funds, endowments, and retail investors—have become interested in middle-market financing. (Source: “Investor Presentation,” Medley Management Inc, last accessed October 31, 2017.)
With an increasing interest in Medley’s specialized field, the company has been enjoying significant growth in its total assets under management (AUM). In 2011, Medley had $1.3 billion in total AUM. By the second quarter of 2017, the amount had grown to $5.4 billion. That translated to a compound annual growth rate of more than 30%.
Growth in Total Assets Under Management (in $Billions)
(Source: “Investor Presentation,” Medley Management Inc, last accessed October 31, 2017.)
Asset managers earn a fee by managing investors’ money. With a growing total AUM, Medley is well positioned to earn an increasing revenue stream.
Of course, an asset manager’s revenue also depends on how well it does its job, as there are opportunities to earn performance fees on top of regular management fees. On that front, note that 87% of Medley’s portfolio is invested in floating rate loans. With interest rates on the rise, a large floating rate loan portfolio would likely generate a larger stream of interest income, boosting Medley’s performance.
While middle-market lending is not exactly the safest business, the company has put in a lot of effort into improving its risk profile. By the end of the second quarter, 77% of Medley’s portfolio was made up of first lien secured loans. The portfolio is also well diversified, with no single industry representing more than 12% of total investments.
With a well-run business and a 14.1% dividend yield, Medley Management Inc deserves a spot on every yield-seeking investor’s watchlist.