A Dividend Screen Reveals Distressed Values

One of my favorite ways to search for stock ideas is to run a very basic, simple stock screen. I just look for all stocks that have a dividend yield of over 10%. The resulting list is usually full of companies that are in some sort of financial stress or are just wildly unpopular at the moment.

The list is also usually full of closed-end funds and real estate investment trusts in out-of-favor sectors. Occasionally, it does produce some stocks that are cheap enough to join the "buy it and forget it" portfolio.

Some familiar names showed up, including the commercial REITS and business development companies that I already own and wrote about earlier this year. There were also new names worth further investigation.

This REIT Looks Right

The first discovery was yet another REIT operating in the commercial real estate arena. Resource Capital Corporation (RSO - commentary - Cramer's Take) makes commercial first-mortgage loans and mezzanine loans. It also invests in commercial asset-backed securities as well as private-equity ventures and, interestingly, trust-preferred stocks from financial institutions. Not exactly a great business in this real estate and economic environment, to say the least.

The raw numbers, however, are compelling. The stock pays a dividend of just north of 17%, and it trades for just 84% of book value. The company's loan portfolio is diverse, and it appears to have the liquidity needed to survive and thrive in the eventual market rebound.

The eminent investor Leon Cooperman owns 14% of the stock through his Omega Investment partnership, and Marty Whitman's Third Avenue Value Fund owns almost a million shares. The company is managed by a subsidiary of Resource America (REXI - commentary - Cramer's Take) an alternative-asset manager with substantial experience in commercial real estate.

Follow That Car

The next stock that caught my eye was one of the more interesting companies I have looked into recently. Ituran Location and Control (ITRN - commentary - Cramer's Take) is an Israeli company that is primarily in the business of recovering stolen vehicles. The technology is also used by vehicle fleet managers to keep track of where their vehicles are at any given moment.

---

Tim Melvin is a writer from Stevensville, Maryland, who spent 20 years a stockbroker, the last 15 as a Vice President of Investments with a regional firm in the Mid Atlantic area. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Melvin appreciates your feedback; click here to send him an email.