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Earning an income yield of 7 – 11% from “special banks” may sound like a lie.
But I assure you it is completely possible. And today I’m going to show you how my subscribers and I have been profiting by investing in on of my favorite “special banks.”
The best news is that this investment remains attractive today, and is still worth your consideration.
There is of course a secret, which I shared last week. These “special banks” aren’t really banks. Instead, they’re a special class of companies known as Business Development Corporations or BDCs.
Following last week’s issue – 8% Yields from “Special Banks” – I got a flood of emails from Income & Prosperity readers who wanted to learn more.
I heard from Mr. Ranhofer who wrote “What BDCs do you recommend?” And also got a note from a Rabbi named Paul who asked “Can you name a few so I can read up on past and current performance?”
The fact is, BDCs are a unique income investment that is overlooked by most investors. So I’m not surprised that so many readers wanted to learn more about these special income opportunities.
In my High Yield Wealth newsletter, I got my readers into these opportunities in early 2011. Since then, many BDCs have been considerably outperforming the market.
High Yield Wealth readers have made a tidy sum since then. The average gain of the three BDCs in the High Yield Portfolio is 21%.
Plus, the average yield of these three BDCs is an impressive 9.5%.
Today, I’ll tell you about one of the BDC investments in the portfolio that is working out well…and remains attractive today, even after some healthy profits.
That company is named Medallion Financial (NYSE: TAXI).
Like all BDCs, this is a specialty finance company that makes loans.
One big aspect of this business is loans for taxicab medallions. This essentially means that Medallion will make loans for licenses and operating capital for taxicabs in major cities like Boston, New York and Chicago.
While the taxicab loan business is core to Medallion’s business, the company has since expanded. Other areas now include fine art loans and a variety of other business loans.
One year ago, I alerted subscribers to my High Yield Wealth newsletter about Medallion. At the time, the stock was trading at $10.25. And the dividend yield stood at 8.2%.
More businesses are turning to alternative lenders like Medallion. This is thanks to a banking system that is still hesitant to loan money.
Those impressive financial results have been sending Medallion shares higher in 2013. And shares are now trading up 43% since my initial recommendation.
Combine the capital appreciation with the 83 cents in dividend payments over the last year, and the total return is above 50%.
Medallion increased its dividend by a penny earlier this year. But with the share price rising, the yield has been falling.
At 6% today, the yield is down from since my initial recommendation. But that 6% still compares quite favorably with the big banks and most blue chip stocks.
The reason couldn’t be simpler: BDCs lend money to businesses that can’t otherwise access traditional capital markets. Simply put, big banks don’t have the time or interest in lending relatively small amounts of money to businesses.
Until banks start lending to America’s small business owners, I expect BDCs will continue to outperform – and pay healthy yields in the process.