In a market denoted by volatility, stocks with a high dividend payout typically come at a premium, but in the case of AllianceBernstein Holding LP (NYSE: AB) we have a bargain.
This is a company that has broad global exposure, no debt to service, and a 9.4% dividend yield.
Better still, AB stock has been beaten down of late, which means we have the opportunity to snap up this gem at a bargain-basement price.
For patient investors looking for cash flow, it doesn't get any better than this. So it's time to buy AllianceBernstein Holding LP (NYSE: AB) (**).
Why AllianceBernstein Holding LP (NYSE: AB) Is a Buy
AllianceBernstein isn't a household name but it's one of the largest asset managers in the world. The $1.5 billion company is the end result of Alliance Capital Management acquiring Sanford C. Bernstein in 2000.
The company has offices in New York, London, Frankfurt, Tokyo, Hong Kong, Sydney and Chicago, giving the company a truly global reach.
Another great thing about AllianceBernstein is that it pays 100% of its earnings per share to investors. That's why the stock currently sports a yield of 9.4%.
With so much uncertainty in the markets, you'd think investors would be pouring into a stock like this. However, the 2008 financial crisis hammered the firm due to its financial-stock exposure.
AllianceBernstein's assets under management (AUM) peaked at $837 billion in 2007 but have since tumbled 45% to $461 billion.
As a result, AB stock has tumbled 37% in the last year, while the Standard & Poor's 500 Index is up 12%. The stock set its 52-week low of $13.25 on Aug. 8, 2011 after hitting a 52-week high of $27.59 on Oct. 13, 2010.
Still, the company is slowly getting up off the mat, which means we have the opportunity to cash in on a turnaround play that offers a huge cash dividend.
After clients pulled billions from the company's funds in 2009 and 2010, AllianceBernstein's AUM were up $12.8 billion from the year before as of June 30.
The company reported second-quarter net revenue of $728 million before adjustments, up 6% from the same period in 2010. And while the market challenged the company's profits, AllianceBernstein reported earnings of 34 cents per share in the second quarter.
Consequently the stock's dividend payout was set at 34 cents per share.
While the yield is subject to change, based on earnings, the company can maintain this generous payout structure because it has no debt to service. This guarantees investors a high yield in current market conditions.
In simple terms, this means you can leverage the financial markets for cash flow, and enjoy your slice of 100% of the net profits generated by the company. Even real estate investment trusts (REITs) are only required to return 90% of taxable income to shareholders.
A big reason for the AllianceBernstein's turnaround is Chairman and Chief Executive Officer Peter S. Kraus, who's determined to return AllianceBernstein to its former glory.
Kraus has recruited new money managers and rolled out new products for inflation protection and asset allocation.
"Peter Kraus is turning the franchise around," Macrae Sykes, an analyst with Gabelli & Co. Gamco Asset Management, told Bloomberg.
AllianceBernstein Holding LP is one of those rare investments that give you a chance to buy a quality company paying a generous dividend.
The stock price pulled back heavily following the 2008 market crash, dropping to $10 a share before rallying 200% in the next year or so. The stock rose 3.36% on Friday to close at $15.68.
It's my belief that despite the company's hard times, the dividend is safe. This means long-term investors will have their original investment cost basis paid down quickly. Even so, the dividend is large enough that it could handle a small cut without much pain to shareholders.
Let's be patient and pick up one-third of our position here at market price, while looking to buy another one-third when the price goes $1 lower per share, and the final one-third at $2 lower than current market price.
While the yield is great, the odds of the stock price pulling back to retest the multi-year lows hit in 2008 and 2009 are high enough to warrant this segmented approach toward building a position.
(**) Special Note of Disclosure: Jack Barnes has no interest in AllianceBernstein Holding LP (NYSE: AB).
Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.
Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning twice a week. In his previous BSH colum, Barnes analyzedSan Juan Basin Royalty Trust (NYSE: SJT).
News and Related Story Links:
- Alliance Bernstein
2 Quarter Earnings Results - Bloomberg Businessweek:
Can AllianceBernstein Regain Its Magic Touch? - Money Morning News Archive:
Previous "Buy, Sell or Hold" Features. - JackBarnes.com:
Confessions of a Macro Contrarian.