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Fly Leasing: Irish Income
10/28/2013 7:00 am EST
Income investors should own securities that offer growth potential as well as cash flow. They should also have some exposure to the US and global markets. My new recommendation meets both criteria, suggests Gordon Pape, editor of The Income Investor.
The company is FLY Leasing Ltd. (FLY), an international leader in commercial aircraft leasing. It is based in Dublin, Ireland and trades as an American Depository Receipt on the NYSE.
FLY Leasing is a leading global lessor of modern, high-demand, and fuel-efficient commercial jet aircraft.
FLY has been in business for more than 20 years and currently has a fleet of 107 aircraft that it leases under multi-year contracts to 55 airlines in 32 countries.
The fleet is constantly growing, with the addition of seven Boeing 737-800 aircraft this year valued at $425 million.
We've seen the negative effect that rising interest rates can have on low-growth dividend securities. Therefore, we need to search out companies that offer growth potential as well as a decent yield. Demand for FLY's leasing services is expected to expand as the global economy improves.
RBC Capital Markets initiated coverage of the company in August with a target price of $18 a share. RBC estimates that the company's book value at the end of the third quarter was about $18 a share. The stock is trading at 0.74 of book.
The current quarterly dividend is $0.22 a share ($0.88 annually). Payments are made in February, May, August, and November.
This security is only suitable for investors who can handle above-average risk. It offers a good yield and capital gains potential, but don't invest if you cannot afford a loss of any kind.
Airplane leasing is an economically sensitive business and FLY's revenue and profit would be adversely affected by any slowdown in world growth. Conversely, the company should do well if the economic recovery gathers momentum. FLY is a Buy for more aggressive investors.
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