Fortress for Yield

09/30/2014 8:00 am EST


Roy Ward

Chief Analyst, Cabot Benjamin Graham Value Investor

This featured company is a leading global alternative asset manager with $63.8 billion in assets under management; alternative investments include various types of options often used to reduce risk, explains J. Royden Ward, editor Cabot Benjamin Graham Value Investor.

Fortress Investment Group (FIG) is headquartered in New York City and has affiliates with offices in major cities around the world. The firm raises, invests, and manages private equity funds and hedge funds.

Fortress intends to grow its existing businesses, especially its equity and fixed-income operations. It will also continue to create innovative products to meet the increasing demand by sophisticated investors for superior risk-adjusted investment returns.

Fortress has adopted a new policy of paying most of its distributable earnings to shareholders. The new policy is off to a good start.

On July 31, the Board of Directors declared a regular quarterly dividend of $0.08, which was paid to stockholders on August 15.

In addition, the board declared a special dividend of $0.18, which was also paid to stockholders on August 15.

I have based my dividend yield for FIG on the latest quarterly distribution of $0.26. I am quite certain the Board of Directors will continue with their new dividend policy. I believe it is safe to assume the dividend yield for Fortress will fluctuate between 10% and 14% during the next couple of years.

Revenues climbed 20% and EPS surged 28% during the 12 months ended June 30. Fortress’ revenues received a boost from stock market returns, the sale of portfolio positions, and the creation of new mutual funds.

Revenues will likely rise another 5% and EPS will advance 25% to 1.33 during the next 12 months. Fortress’ stellar investment returns will attract additional capital during the next several quarters.

At just 7.0 times current EPS and with a very low PEG ratio of 0.22, FIG shares are clearly undervalued. I expect the stock price to increase to my minimum sell price target of $11.38 within two years. Buy at the current price.

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