Three Turnaround Stocks With Fat Yields

BOSTON (TheStreet) -- The stock market's breakneck pace has many investors chasing growth stocks when it might be wiser to buy dividend-paying shares. Here are three stocks with fat yields and solid turnaround prospects.

3. Apollo Investment Corp.

(AINV) - Get Report

, managed by private equity firm

Apollo Management

, is a closed-end fund that owns stakes in closely held companies.

Yield

: Apollo paid a distribution of 28 cents March 16, equal to an annual yield of 8.8%. In the previous year's quarter, it paid 52 cents. If Apollo maintains its 28-cent payment, its payout ratio will be 56%. Distributions are taxed differently than dividends.

Quarter

: Apollo swung to a fiscal third-quarter profit of $80 million, or 48 cents a share, from a loss of $476 million, or $3.34, a year earlier. Revenue fell 13%. The operating margin narrowed to 65%. Apollo has $506 million of cash and $948 million of debt.

Valuation

: The stock trades at a price-to-earnings ratio of 6.4 and a price-to-projected-earnings ratio of 9.7, 60% and 49% discounts to industry averages. It's also cheap based on cash flow and book value.

Consensus

: Of analysts following Apollo, eight, or 57%, advise purchasing its shares and six recommend holding.

Keefe, Bruyette & Woods

(KBW)

expects the stock to advance 8% to $14.

Macquarie

, which also rates Apollo "buy," projects a share price of $13.

Holders

:

Thornburg Asset Management

, Apollo's largest shareholder with a 5.6% stake, decreased its position in the latest quarter.

Bank of America

(BAC) - Get Report

increased its holdings to 4.1% of shares outstanding.

2. Windstream

(WIN) - Get Report

provides telecommunications services, including phone, high-speed Internet and television, in rural areas of the U.S. Headquartered in Little Rock, Ark., Windstream has increased revenue 8.7% annually during the past three years.

Yield

: Windstream paid a dividend of 25 cents in its most recent quarter, translating to an annual yield of 9.1%, but an excessive payout ratio of 132%. Shareholders recently approved the acquisition of

Iowa Telecommunications Services

( IWA).

Quarter

: Fourth-quarter net income decreased 7% to $76 million, but earnings per share fell 19% to 17 cents. Revenue declined 3% to $754 million. The operating margin dropped to 34%. Windstream has $1.1 billion of cash and $6.3 billion of debt.

Valuation

: The stock sells for a price-to-earnings ratio of 14 and a price-to-projected-earnings ratio of 12, modest discounts to industry averages. It's expensive based on book value and cash flow. It has a beta, a measure of market correlation, of 1.

Consensus

: Of researchers following Windstream, 10, or 56%, rate its stock "buy" and eight rate it "hold."

Morgan Stanley

(MS) - Get Report

and

Jefferies

(JEF) - Get Report

project a share price of $13, a potential 17% gain.

Stifel Nicolaus

(SF) - Get Report

also rates Windstream "buy."

Holders

:

State Street

(STT) - Get Report

and

BlackRock

(BLK) - Get Report

, two of Windstream's top five holders, purchased shares in the latest reporting period. Hedge fund

Renaissance Technologies

increased its wager to 1.1% of shares outstanding.

1. Vector Group

(VGR) - Get Report

sells discount cigarettes under the Eve, Grand Prix, Liggett Select and Pyramid brands. Its New Valley subsidiary controls 50% of Douglas Elliman Realty, New York's largest residential real estate brokerage. Revenue has risen 8.5% a year since 2007.

Yield

: Vector paid a dividend of 40 cents in its most recent quarter, equal to an annual yield of more than 10% and an exorbitant payout ratio of 471%. Vector has a record of regular dividend increases, but 100% of its 2009 payouts were taxable.

Quarter

: Adjusted fourth-quarter profit rose 5.8% to $18 million, or 25 cents, as revenue grew to $237 million. The operating margin narrowed from 34% to 31%. Vector holds $261 million of cash and $357 million of debt. It is running a shareholders' deficit.

Valuation

: The stock trades at a price-to-earnings ratio of 46, a 200% premium to the industry average. Its price-to-sales ratio of 2.6 represents a 31% discount to the tobacco industry average. Vector has a low beta, a measure of market correlation, of 0.5.

Consensus

: Vector has a small Wall Street following due to its $1.1 billion market value. Firms covering the stock are independent researchers, such as

TheStreet Ratings

, which rates it "hold."

Thomson Reuters

(TRI) - Get Report

upgraded Vector Group to "buy" on March 5.

Holders

:

Icahn Associates

, founded by activist investor Carl Icahn, owns 19% of Vector. Icahn increased his wager in the fourth quarter. Chairman Bennett LeBow increased his holdings to 12%. Chief Executive Howard Lorber upped his stake to 6%.

-- Reported by Jake Lynch in Boston.