Why Apollo Investment, Royal Bank of Canada Should Be in Your Portfolio

 

NEW YORK (TheStreet) -- For investors who are leery of financial stocks after the carnage of the Great Recession, Royal Bank of Canada (RY) , Apollo Investment  (AINV) and Preferred Apartment Communities (APTS) should engender confidence.

While not as well known as Bank of America (BAC) , Goldman Sachs (GS) and Citigroup (C) , each has compelling features that should appeal to long-term investors, including a good dividend.

Most important, each of these publicly traded companies, in different sectors of the financial group, should prosper due to prevailing economic trends.

Preferred Apartment Communities is a real estate investment trust, or REIT, that owns and operates multifamily properties. This segment of the housing market benefited from the recent recession. With fewer people buying homes more are renting housing, including multifamily homes. Shares of Preferred Apartment Communities, at around $8.70, are up nearly 9% for the year to date.

A business development company, Apollo Investment invests in middle-market products and equities. Companies in its portfolio are generally in the $50 million to $2 billion revenue range. Due to tighter lending standard by banks, there are more and better opportunities for BDCs like Apollo Investment. This results in a portfolio that has better companies with better terms, resulting in better results for BDCs like Apollo. Its stock, at around $8.75, is up over 3% for the year to date.

As for Royal Bank of Canada, unlike its American counterparts during the recession, the Canadian financial sector fared much better: There were about 200 bank failures in the United States compared to none in Canada between 2007 and 2010. The return on equity for the banking industry during 2008, the recession's low point, was approximately 10% in Canada as opposed to about a negative 15% for American lenders. Shares of Royal Bank of Canada, at close to $81, are up nearly 13% for the year to date. The future is bullish for the resource-rich Canadian economy.

While no one can be sure how long the bull market in equities will continue, investors can take comfort in that the dividend payments of Apollo Investment Corp. as a BDC and Preferred Apartment Communities as a REIT are required by law. Royal Bank of Canada has a long tradition of paying a dividend.

Even with the robust gains in recent trading, few investors are betting that the stock price will fall for these financials as all have short floats well below 1%.

At present, the dividend yield of Apollo Investment is over 9%, with Preferred Apartment Communities almost 7.3%, and Royal Bank of Canada around 3.6%. All are profitable with strong returns. Compare that with Bank of America, which had to cut its dividends during the Great Recession from 64 cents a quarter in 2008 to 1 cent from 2009 to the most recent quarter, when it rose to 5 cents. For Citigroup, the dividend was cut from 32 cents in 2008 to 1 cent. Goldman Sachs now sports a dividend yield of 1.24%, far below the average of nearly 1.9% for a member of the Standard & Poor’s 500 Index.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.


TheStreet Ratings team rates ROYAL BANK OF CANADA as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate ROYAL BANK OF CANADA (RY) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, increase in net income, good cash flow from operations and growth in earnings per share. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook." You can view the full analysis from the report here: RY Ratings Report

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