These days uncovering a dividend gem is increasingly difficult with most dividend stocks already trading at the upper echelon of valuation. A few days ago I wrote about lesser known dividend aristocrats and in that same vane I’m trying to introduce another dividend stock that you may not have heard of. As a dividend growth investor we are always on the lookout for that next great potential dividend ride. So sit back, relax while I hail a taxi for you. Well not just any taxi, I’m talking about Medallion Financial Corp. (MFIN).
Medallion Financial Corp. operates as a finance company for originating, acquiring, and servicing loans that finance taxicab medallions. It also offers commercial loans to finance the purchase of equipment and various asset-based loans, that includes fine art lending, to small businesses and other secured loans in various industries including manufacturing. Basically, TAXI is a credit services business making loans. What makes TAXI unique is that it is one of the few financial lenders that exist to finance taxicab medallions. Now what exactly is a taxicab medallion? A taxicab medallion is basically a metal badge that is bolted on to the hood of officially licensed taxicabs in New York City for example. TAXI also finance medallions for Boston, Chicago, Newark, Philadelphia and Baltimore. They don’t come cheap either. Because of their high prices, often over $700,000 to $1,000,000, medallions are usually owned by investment companies and are leased to drivers. In fact the N.Y. Times did a piece on the price of taxicab medallions not too long ago titled, “$1 Million Medallions Stifling the Dreams of Cabdrivers.” Of course, this is where TAXI comes in as a financier for corporations or individuals seeking their own taxicab medallion.
As a dividend stock TAXI definitely delivers. It has a very high yield of 7.2% which I know will gather the attention of many dividend investors. It has been paying a dividend every year since 1997 and has been growing it the last few years. One thing to note is that it’s a small cap stock with a current value of $333MM and a beta of 1.18. For me, this stock might be a little to small and too volatile for my portfolio but you can’t deny that juicy yield and stable earnings based on their relatively conservative lending practices as all loans are secured by some asset including the medallions that are being financed. One thing to consider though is the very high payout ratio for its dividend which stands at 99%. Based on that figure I’m not sure how many more dividend increases lay ahead for TAXI. Still, even at current levels it does offer an attractive yield. Looking at TAXI’s valuation it is quite low relative to the S&P and its peers at only 11.9. Does this make it a buy at current levels? Perhaps. One thing is for sure it is definitely worth considering.
Does TAXI belong in your portfolio? Let me know.
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