by Dan Burrows | September 12, 2013 1:55 pm
Everyone loves a dividend stock that throws off a big, fat yield and generates market-beating price appreciation.
Too bad they’re hard to find and even tougher to buy with confidence. Let’s face it: Juicy dividends have a way of getting cut, and high-flying stocks are always at risk for a correction.
Of course, one way to feel more secure in a stock’s dividend stream and future price action is to look at insider buying.
Insiders — those executives and board members who know more about the company’s prospects than you do — sell for all sorts of reasons, most of which signal nothing about the future. In fact, insiders always sell more than they buy — partly because a huge proportion of executive compensation is stock-based. (Hey, you can’t buy a beach house with unexercised options.)
Insider buying, however, presumably happens for only one reason: Someone in a position to know has enough faith in the company to put his or her own hard-earned cash on the line.
With that in mind, we scoured the Russell 3000 and found three stocks you can feel confident in for a number of reasons: They’ve got junk-bond-level dividend yields, without the junk-bond risk. They’re beating the S&P 500 for the year-to-date. Liquidity is always important, so market capitalization is at least $900 million. And — most importantly — these stocks have a track record of insiders buying many more shares than selling.
Here are the top three dividend stocks we sussed out:
Year-to-Date Performance: 67%
Dividend Yield: 8.5%
Market Cap: $1 billion
Insider Buying: During the past six months, insiders bought nearly 140,000 more shares than they sold, according to data from Thomson Reuters Stock Reports.
Notes: BGCP, a global brokerage mainly serving the wholesale financial and real estate markets, is set up like a partnership or real estate investment trust. That means it pays out almost all of its net earnings to shareholders in the form of dividends.
Year-to-Date Performance: 22%
Dividend Yield: 7.9%
Market Cap: $1.6 billion
Insider Buying: Over the last six months, insiders bought 16,255 shares and sold none.
Notes: HLSS is a mortgage servicer, buying up rights to service mortgages, servicing advances and rights to mortgage servicing rights. The company is purposely structured to move a steady stream of earnings straight through to shareholders in the form of dividends. Robust cash flow and assets that are 23 times overcollateralized help keep the payouts coming.
Year-to-Date Price Performance: 33%
Dividend Yield: 7.6%
Market Cap: $913 million
Insider Buying: Over the last six months, insiders purchased 23,440 more shares than they sold.
Notes: Hercules, which specializes in venture funding for tech companies, is set up as a business development corporation (BDC). Like REITs, BDCs are pass-through entities that are required to deliver their profits to shareholders in the form of dividends. (They also pay no federal taxes.) But be forewarned that Hercules’ business — investing in startups or giving them unsecured loans — is an inherently risky endeavor.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
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