Medallion Financial Corp. (Nasdaq: TAXI)
This small-cap company operates in a great little niche that generates alot of cash and has huge barriers to entry. Medallion Financial is a leading provider of financing for taxi medallion purchases in New York (as well as Boston, Chicago, Newark, Philadelphia and Baltimore) to help them purchase the “medallion” required to operate a cab in the city - which run between $686,000 to $975,000 each in NYC. Loaning against these medallions is a fantastic business because the supply is regulated by the city, the demand is high and there is little competition. The company has about $650m in outstanding loans at between 6-7%.
The prospect of charging cars to enter midtown Manhattan during peak hours could benefit Medallion’s business as it would cause a jump in medallion prices. The company hasn’t written off a loan in 70 years, and only has to repo an average of only 2 medallions a year. Also, the company recently secured a new credit facility from Citigroup would would allow it to increase its leverage and thus bump its ROE from high single digits to about 15%.
This is one of those unknown high dividend stocks in a very lucrative niche sporting a 7% yield that’s going to be a good earner for years to come. Read the full article here.