Consider OAK Stock for Its 11.09% Dividend Yield
Owning companies that are trading at a discount is a great way to control risk within an investment portfolio and also own an investment that offers value. The company we are looking at today is offering a high dividend yield of 11.09%.
How is value determined within a company?
Value is not determined by looking at the stock chart. What this means is that a low price today compared to a previous point in time doesn’t mean that there is value in the company. Rather, there must be a comparison made using the company and its competitors as a benchmark. This is done using the company’s price-to-earnings (P/E) ratio, which ignores market cap size, share price, and dividend yield.
The reason why this is the best method to determine value is because companies within the same market segment will see the same external effects on earnings, such as the performance of the economy, government regulations, and the benchmark interest rates.
With all this being said, one company that investors may want to consider looking into for their investment portfolios is Oaktree Capital Group LLC (NYSE:OAK) stock. Let’s take a deeper look at the value that OAK stock offers.
Cheap Valuation
The P/E ratio takes the stock’s trading price and then divides it by the annual earnings of the company. When the ratio of a stock is lower than its peer group average, then there is value in the company. When purchasing a company at a lower P/E ratio, the expectation is that the ratio of the company will trade in line with its peer group.
In the case of OAK stock, it currently has a P/E ratio of 10.4 times, compared to 22.4 times for the industry peer group. To simplify things, this means that investors pay $10.40 for each dollar of earnings, compared to $22.40 for the industry group.
Why Is OAK Stock Trading at a Discount?
There are two reasons why a stock would trade at a discount: either investors are ignoring the company, or there is no growth in the company to look forward to as an investor. If the company has no growth, then I would suggest staying away from such an investment. However, if the market is ignoring the company, then it would be ideal to consider as an investment. The reason is because there is value in the company and it would be a contrarian investment opportunity.
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When assessing the financials of Oaktree, the thesis is leaning more towards investors ignoring OAK stock and its great business operations. For example, the net income in the second quarter of 2017 increased to $117.3 million from $49.0 million in the same quarter in 2016. Even when comparing the second quarter of 2017 to 2016, fee-generating assets grew by one percentage point in a three-month period. While waiting for OAK to increase in valuation, there is a method of getting paid for your time now, since the company offers dividends. (Source: “Oaktree Announces Second Quarter 2017 Financial Results,” NASDAQ, July 27, 2017.)
Earn a High Dividend Yield
The current dividend yield is 11.09%, which is distributed on a quarterly basis. Let’s say a $100,000 investment was made in OAK stock. There would be $11,090 earned annually and $2,772 quarterly. The quarterly dividend would amount to $1.31 per share. OAK stock is also a dividend growth stock that has seen an increase of 124% over the previous quarter.
With the business growing over the previous year and quarter, there is more possibility of seeing more dividend hikes. As a result, investors would not need to sell any shares and would collect a higher dividend per share. The benefit as an investor is that a higher dividend yield would be calculated, which would result in a higher rate of return over time.
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Final Thoughts About OAK Stock
Owning a value stock is a great method of owning great investments on the cheap. Also, with this investment strategy, there is never the need to chase a stock and potentially purchase one at an overvalued valuation.
This is why OAK stock is one of my favorites in the high dividend-yielding environment. There is still a return being generated even though the market may not realize that this stock is trading at a discount. When the time does come and investors notice OAK stock, investors would see the positive results in their bottom line, with the stock price trading higher.