Speaking of “insider trading” conjures up images of smoky backrooms and seedy deals, but that's only true of movies. In real life, insiders refer to business leaders such as CEOs, CFOs, COOs, and directors who are responsible for running their businesses profitably. They don't take trading their own company's stock lightly. Although they may sell for a variety of reasons, they only buy if they expect the stock price to rise.
That makes insider trading moves one of the surest clues investors can look for to predict a stock's movements over the short to medium term. Insiders have advance knowledge of the factors that will affect stocks because of their positions, and regulators level the playing field by requiring insiders to publicize their dealings. Investors can keep an eye out for these releases, and stocks with heavy insider buying are always worth a closer look.
You can amplify the positive insider signals by combining them with other factors that are closely associated with strong returns — such as a high dividend yield. Passive income is always a boon for investors, and when that passive income yields an 8% return or more and the insiders are making big purchases, it's a combination that deserves attention.
So let's give these double-barrelled stocks the attention they deserve. Using the Insiders Hot Stocks tool on TipRanks, we found two stocks that are seeing strong insider buying over the past few days, along with dividend yields that start at 8% and climb from there. As if that weren't enough, both stocks also received support from Wall Street analysts. Let's take a closer look.
Owl Rock Capital (ORCC)
We start in the world of Business Development Companies (BDCs). These financial companies provide their customers with access to credit and capital. Their customer base consists of small and medium-sized businesses, which have long been the engines of the US economy. These companies don't always have access to major banks, but Owl Rock and its competitors provide the capital, credit, and credit facilities these companies need for growth, acquisitions, and market or product expansions.
Owl Rock Capital's investment portfolio includes 187 of these middle-market companies with a combined market value of over $13 billion. Of Owl Rock's investments in these companies, 98% are floating rate and 85% are senior secured investments.
It is a quality portfolio that has contributed to ORCC's increasing returns over the past year. In fact, the company reported strong earnings in its most recent quarter, Q1'23, that far exceeded the Street's forecasts. ORCC's total investment income was $377.6 million, an increase of 42% compared to the same quarter last year. Even better, total investment income was $12 million more than expected.
Bottom line, net investment income (NII) was $177.8 million, or 45 cents a share. That was 14 cents a share higher than in the first quarter of 2022 — and 2 cents higher than analysts had predicted.
Strong investment income supported a generous dividend. For the second quarter, the company declared a regular dividend of 33 cents per common share, to be paid on July 14. That regular dividend is $1.32 annualized and offers an impressive 9.8% yield.
As for insider trading, we note that the company's President and CEO, Craig Packer, bought 75,600 shares of the company's stock for approximately $1 million in May.
The company's top executive isn't the only cop here; RBC Capital's 5-star analyst Kenneth Lee writes about this stock: “ORCC could be on track to deliver over 12% ROE this year. The credit performance in the portfolio is still solid in our view. We expect to gain further insight into ORCC's investment approach and potential return profile across cycles at the upcoming Investor Day. We continue to favor ORCC as one of the few large-scale BDCs, with an attractive valuation (0.85x NAV) and dividend yield (~10%).”
In Lee's view, this translates into an Outperform rating (ie, Buy) and he sets a price target of $15, which implies upside potential of around 12% for one year. The stock has a potential total return profile of 22% based on its current dividend yield and expected price appreciation. (To view Lee's track record, click here)
As for Wall Street in general, ORCC receives a consensus rating of Moderate Buy based on 5 recent reviews, including 4 buys and 1 sell. (See ORCC stock forecast)
Switching gears from the BDCs, we look at a company in a different sector known for high dividends, a real estate mutual fund. The REIT is Boston Properties, a major player in the US workplace real estate segment. Boston Properties is the largest publicly traded developer, owner and manager of such properties in the United States.
A look at some numbers gives some clues. Boston Properties has 177 office properties in its portfolio with a total leasable area of 50 million square meters. These properties are located in six metropolitan areas considered some of the most desirable real estate in the United States. BXP holds interests in the city of Boston, New York City, Washington DC, Seattle, San Francisco and Los Angeles. The company's largest footprint is in Boston with 49 locations and 15.9 million square feet; Next up are Washington and New York with 42 properties and 22.6 million square feet of space.
Commercial real estate, especially in urban areas, is under pressure after the COVID crisis. With many workers still commuting remotely, companies are looking to downsize their office space. But even in this difficult environment, BXP was able to maintain its sales and earnings. The company's revenue for the most recent quarter, Q1 23, was $803.2 million, capping nearly two years of steady sequential revenue growth. Total for the first quarter was also up 6.5% year over year, beating expectations by $24.4 million.
The bottom line is that there are several metrics to consider. BXP's GAAP earnings of 50 cents missed guidance by 4 cents and were 45% below the year-ago quarter's EPS of 91 cents. Of more interest to dividend investors, however, is that BXP reported Q1 2023 funds from operations (FFO) of $1.73 per share for a total of $272 million. Current FFO, while down on results from the prior-year quarter ($1.82 per share and $286.1 million in total), was more than enough to fully fund the company's dividend.
The dividend was paid at the end of April in the amount of 98 cents per common share. BXP has kept the dividend at this level since late 2019; The annualized interest rate of $3.92 per common share translates into a strong 8% yield.
If we take a closer look at this company's insider trading, we discover that Carol Somer, a member of the board of directors, recently purchased 10,000 shares for $474,100.
Evercore ISI analyst Steve Sakwa is also bullish on the stock, focusing on the company's ability to generate funds.
“After a few adjustments to our model, our FFO estimate for 23 goes from $7.15 to $7.18, reflecting a slightly higher base rent and lower operating expenses. In comparison, our new estimate for FY24 is $7.58, reflecting slightly more conservative operating expenses… We maintain our Outperform rating given the company's quality portfolio, healthy balance sheet and robust development pipeline to reflect long-term value in an otherwise difficult office sector,” said Sakwa.
This Outperform (ie Buy) rating comes with a price target of $67, which translates to ~38% growth for the coming year. (To view Sakwa's track record, click here.)
Overall, five of the 12 most recent analyst ratings recorded here are buy and seven are hold, giving the stock a moderate buy consensus rating. (See BXP Stock Forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is for informational purposes only. It is very important to do your own analysis before investing.