The Secret Financial Stock With A 7.8% Yield

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All industries are dominated by the biggest and most successful companies. In technology, there is Google (Nasdaq: GOOG) and Amazon.com (Nasdaq: AMZN) . In energy, companies such as ExxonMobil ( XOM ) and Conoco Phillips ( COP ) reign supreme.

But every once in a while, a new guy comes along and shakes things up. And that's what's happening in the private-equity space right now. Since the 1980s, this industry has been dominated by stalwarts such as the Blackstone Group ( BX ) and Kohlberg Kravis Roberts & Co. ( KKR ) . But the newest player in the private-equity scene is burning up the charts and putting its competition to shame.

In fact, the company'sinvestments have been so successful,shares have been surging higher -- up 110% in just the past 12 months. Take a look at the chart below.

Thestock I am talking about is Apollo Global Management ( APO ) , a private-equity andinvestment consulting firm that was founded in 1990 but went public only two years ago. Led by billionaire private-equity mogul LeonBlack , the company hasput together an impressive string of investments that have produced big returns.

In early April, the company said it stands to make a fivefold return on its investment in Puerto Rico-based payment processor Evertec, with aninitial public offering (IPO) scheduled for mid-April. Apollo purchased 51% of Evertec in 2010 for $184 million; that investment is now valued at $700 million, which doesn't include another $160 million Apollo has received in dividends.

Apollo has seen incredible returns on other investments as well, with its NCL Corp. (Nasdaq: NCLH) IPO up more than 60% and Realogy Holdings Corp. (Nasdaq: RLGY) IPO up more than 40%. 

The firm's current private-equity pool, Apollo InvestmentFund VII, was producing a net 26% internal rate of return at the end of 2012 after capitalizing on distressed opportunities created from the 2008 financial crisis, according to Bloomberg. Apollo's $10.1 billion Fund VI, invested during the 2006-08 surge inbuyout transactions, carried a 9% return rate.

Those amazing returns have already had a big effect on Apollo'sbottom line , but looking forward, its stellar track record is fueling hugegains in assets under management, up 51% lastyear . More assets under managementwill enable Apollo to pursue more deals, addleverage and increase management and performance fees. Those are all keyrevenue andprofit drivers for private-equity andinvestment management companies. 

Apollo's incredible string of high returns has also led to an eye-popping stream of income for shareholders. In the past year, the company has returned a total of $6.5 billion in dividends to investors.Analysts are projecting a full-year distribution of $2 in 2013, which would translate into adividend yield of 7.8%. That's more than four times the 10-yearTreasury note 'syield of 1.9%.

Despite all the good news, an outsize dividend yield and past-year gains, Apollo still looksundervalued . The company's forward price-to-earnings (P/E ) ratio of 8 is a sharp discount to its peer average of 13. That looks even better compared with the S&P 500's 14.

Risks to Consider: Apollo had a banner year last year with a number of big-money projects and investments that exceeded expectations. Althoughearnings , valuation and yield look good, that strong performance could be difficult to replicate.

Action to Take --> Apollo is the new player on the block in the private-equity space aftergoing public just two years ago. The company's impressive string of returns has enabled it to grow earnings andsupport an outsize dividend yield, lifting shares to new heights. 



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.


This article appears in: Investing , Investing Ideas , Stocks

Referenced Stocks: APO , BX , COP , KKR , XOM

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