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3 ‘Secret’ Dividend Stocks With Loud Yields

These dividend stocks are flying well below the radar, but their generous payouts are worth a shot

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Medallion Financial Corporation (TAXI)

medallion-financial-group-taxi-stockDividend Yield: 6.6%

The first selection is a fascinating company called Medallion Financial Corporation (TAXI).

Did you know that some cities restrict the number of taxi licenses permitted? As a result, the value of those licenses has only increased over the years. It’s like Prohibition — if you limit supply, prices rise. In New York City, a cabbie told me a medallion (license) goes for over a million bucks! (Turns out, he’s right.)

Well, Medallion Financial finances those licenses, and it’s a great secured loan to make — the company makes a net 6.96% spread on the deal. The company is well-financed, having just renewed its $150 million facility and sold equity to the tune of $45 million. TAXI is conservatively leveraged given the collateral, with short-term debt and the current portion of long-term debt at $338 million against principal of $463 million, or about 70% loan-to-value. Delinquencies are virtually non-existent. TAXI also has branched out into other forms of specialty finance, such as lending against fine art and for the purchase of luxury boats.

As a business development company (BDC), TAXI stock must pay out 90% of its profit, which it does, to the tune of a 6.6% yi9eld. There’s talk that Uber, with its mobile application of summoning private drivers, will provide significant competition because the cars don’t require a medallion. However, Uber is not as much of a threat as believed. The cars are not always available, and you might have to wait up to 12 minutes for one. It’s a lot easier to hail a cab. Uber also is 1.5 to 2.5 times more expensive. The point of Uber is to get a car when taxis are difficult to get. That will only appeal to a limited demographic.

I love specialty finance, and I love TAXI stock. I think it’s undervalued here at $14.

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