Have you ever wondered what it would be like to trade stocks alongside corporate insiders? There is a way you can do this -- and it is perfectly legal. Information about insider share purchases and sales is readily available to anyone who wants to view it. That's because corporate officers, directors and major shareholders are required to publicly disclose their trades in a company's stock in filings with the Securities and Exchange Commission (SEC) within two business days.
Many investors don't bother to view this information, which is reported in SEC form 13-F and 4 filings, but I think insider trading data can give valuable insight into what corporate managers are really thinking about their company and its growth prospects.
After all, corporate insiders know the outlook for their business far better than other investors and are unlikely to be loading up on shares if they believe the company is overvalued. As a signaling device, insider buying isn't foolproof, of course. There are many reasons executives may buy stock. However, the historic record suggests that more often than not, strong insider buying presages improving prospects for a company.
Screening for companies that have strong insider-buying activity can be a great starting point for further research, since it often turns up some high quality prospects. And for income investors, insider buying may help identify fundamentally sound stocks trading with rich yields.
There are many sites where corporate insider-trading data can be obtained free of charge (The Wall Street Journal and Barron's are particularly good resources as well). A number of publications report insider transactions weekly.
Listed below are five high-yielding stocks that have recently experienced strong insider buying activity.
1. Hatteras Financial (NYSE: HTS)
Yield: 14.3%
Hatteras is a mortgage real estate investment trust (REIT) based in North Carolina that invests in agency-backed mortgage securities. The company's CEO, Michael Hough, purchased 5,000 shares in a March secondary offering and six other insiders also purchased stock. The offering was priced at $28.50 per share and raised more than $413 million. The size of the secondary offering suggests that management sees improving investment opportunities for the company this year.
Yield: 14.3%
Hatteras is a mortgage real estate investment trust (REIT) based in North Carolina that invests in agency-backed mortgage securities. The company's CEO, Michael Hough, purchased 5,000 shares in a March secondary offering and six other insiders also purchased stock. The offering was priced at $28.50 per share and raised more than $413 million. The size of the secondary offering suggests that management sees improving investment opportunities for the company this year.
Hatteras shares trade close to book value and offer a generous $4.00 annual dividend and a hefty 14.3% yield. With that size of a payout and yields from other investments near historic lows, it's easy to understand why insiders want shares. The fact that insiders are buying may also be a positive sign that the dividend is secure.
2. Kayne Anderson MLP (NYSE: KYN)
Projected forward yield: 6.4%
CEO Kevin McCarthy paid nearly $306,000 to purchase 10,000 shares of this energy master limited partnership (MLP) in an April secondary offering that raised about $167 million. McCarthy currently owns some 63,400 shares worth more than $1.9 million. Executive Vice President James Baker also purchased shares in the offering. Kayne Anderson has about $3.3 billion in assets, which it invests in the energy sector through MLPs. Kayne Anderson declared a first quarter 2011 distribution of $0.49 per share, which puts the annualized yield at 6.4%.
Projected forward yield: 6.4%
CEO Kevin McCarthy paid nearly $306,000 to purchase 10,000 shares of this energy master limited partnership (MLP) in an April secondary offering that raised about $167 million. McCarthy currently owns some 63,400 shares worth more than $1.9 million. Executive Vice President James Baker also purchased shares in the offering. Kayne Anderson has about $3.3 billion in assets, which it invests in the energy sector through MLPs. Kayne Anderson declared a first quarter 2011 distribution of $0.49 per share, which puts the annualized yield at 6.4%.
3. Golub Capital BDC (Nasdaq: GBDC)
Yield: 8.1%
CEO David Golub purchased $2 million worth of stock in the company's $55 million equity offering in April. Chairman Lawrence Golub acquired the same amount of stock and another Golub director purchased shares worth nearly $394,000. Both Lawrence and David are 10% owners of the company.
Yield: 8.1%
CEO David Golub purchased $2 million worth of stock in the company's $55 million equity offering in April. Chairman Lawrence Golub acquired the same amount of stock and another Golub director purchased shares worth nearly $394,000. Both Lawrence and David are 10% owners of the company.
Golub Capital is abusiness development company (BDC) that makes debt and equity investments in middle-market companies that are typically sponsored by private-equity investors. The company completed its initial public offering last year. Like other BDCs, Golub Capital pays out a large portion ofearnings as dividends. The payout last quarter was $0.32, which suggests a $1.28 annualized dividend, yielding 8.1%.
4. Verizon Communications (NYSE: VZ)
Yield: 5.2%
In some instances, a company itself qualifies as an insider by making a big share buyback. Share repurchases are often considered a good omen by investors as a signal that management thinks the stock is undervalued and presents a buying opportunity.
Yield: 5.2%
In some instances, a company itself qualifies as an insider by making a big share buyback. Share repurchases are often considered a good omen by investors as a signal that management thinks the stock is undervalued and presents a buying opportunity.
This is the scenario for Verizon Communications, which is buying back large blocks of its own stock. Verizon is the country's second-largest telecommunications company by market value after AT&T. In April, the company purchased more than 17 million of its own shares at market prices averaging $27.60 per share. Verizon's board has authorized the repurchase of up to 100 million shares, which represents nearly 4% of the outstanding stock. Verizon pays a $1.95 annualized dividend and currently yields 5.2%.
5. AstraZeneca (NYSE: AZN)
Yield: 7.5%
British drug-maker AstraZeneca is the world's seventh-largest pharmaceutical company and best known for its top-selling cholesterol drug, Crestor. This company bought back $2.1 billion worth of its own stock last year and AstraZeneca's board recently doubled the size of the share repurchase to $4 billion this year. At the current $48.60 share price, the 2011 repurchase would total more than 82 million shares, or nearly 6% of the stock.
Yield: 7.5%
British drug-maker AstraZeneca is the world's seventh-largest pharmaceutical company and best known for its top-selling cholesterol drug, Crestor. This company bought back $2.1 billion worth of its own stock last year and AstraZeneca's board recently doubled the size of the share repurchase to $4 billion this year. At the current $48.60 share price, the 2011 repurchase would total more than 82 million shares, or nearly 6% of the stock.
AstraZeneca also has an impressive track record for dividend growth. Dividends have increased for eight consecutive years and grown 14.4% in the past five years. The company pays dividends twice a year -- the current annualized dividend of $3.70 leaves the stock yielding 7.5%.
Action to take--> My favorite pick for conservative investors is AstraZeneca. This leading global pharmaceutical company offers exceptional dividend growth and an attractive yield. More aggressive investors may want to look more closely at Kayne Anderson and Golub Capital. Kayne Anderson benefits from rising fuel prices and expanding energy infrastructure. Golub Capital is well positioned to make new investments. The company has secured a fresh infusion of capital in anticipation of renewed buy-out and lending activity in the middle market.
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