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Looking for new ideas for your income portfolio? You may want to consult B. Riley Financial (NASDAQ:RILY), an investment bank/merchant bank that uses its balance sheet to generate fees, create investment opportunities and earn money for its clients and shareholders.

You may never have heard of this company, but RILY Ranked #2 on Fortune Magazine’s Fastest Growing Companies List for 2021which ranks the top performing publicly traded companies based on revenue, earnings and total returns over the three-year period ending June 30, 2021.

RILY has a strong small cap franchise: it ranked #1 in small cap bookrunning and #2 in market issuance in 2021, and was also in the top 10 for IPOs in stock market and small cap ATM issues. .

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RILY’s website

RILY’s largest segments are Capital Markets, with 52% of 2021 revenue, and Wealth Management, with 28%. She is also active in financial advisory, principal investments, liquidations and brand investments. He owns United Online and 40% of MagicJack, both of which provide ongoing revenue for RILY.

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RILY’s website

With so much media coverage, you might be tempted to think that RILY was a small, underground business, but that’s far from the case:

RILY was founded in 1997 and publicly traded in 2014. It has 200 offices across the United States, with 2,000 employees, and 20 years of continuous growth.

Insiders buying:

The company also has a large insider stake, at 27%, with 457,000 shares purchased in 2021.

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RILY’s website

This trend continued in 2021, with ~441,000 shares bought in March and ~2.38 million bought in February by the company and insiders:

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Earnings:

RILY has acquired several companies, such as National, FocalPoint, and Great American Group, which is primarily a retail liquidation business.

It also purchased four telecommunications and communications assets, two wealth management businesses, a forensic litigation support restructuring business, a portfolio of retail brand licenses, a loan receivable, a portfolio and several complementary assets. smaller.

Management has decided to further diversify RILY’s operations into complementary cash flow generating businesses and primarily uncorrelated assets, which may also have the effect of offsetting headwinds to growth.

This was highlighted in 2021, when RILY’s two largest segments, Capital Markets and Wealth Management, both saw very strong growth, at ~58% and 423%, respectively. Financial Consulting was up 2%, but Retail Liquidation was down around -17%, and Principal & Brand Investment Income was down -18%.

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While overall revenue was up around 3%, capital markets slowed markedly in Q4 21, with IPOs, secondary and SPAC offers have stopped in the past two months. which resulted in lower net income, EBITDA and EPS compared to Q4 ’20.

The full year 2021 review shows very strong growth across the board, with revenue up around 93%, net profit up 118%, EBITDA up 87% and EPS down. up about 100%, even with a 9.39% growth in the number of shares.

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Looking further, you can see strong revenue and EBITDA growth in 2019 and 2020, which really took off in 2021:

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RILY’s website

Dividends:

One of the characteristics of RILY’s business model is that it features episodic windfalls, which can result in windfall dividends. This was the case in 2021, during which RILY paid $10.00/share in special dividends.

Management then increased the regular quarterly dividend by 100% in Q4 21, from $0.50 to $1.00:

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At its 4/15/22 closing price of $56.92, RILY is yielding 7.03%, with a dividend payout ratio of 82.56%, due to the $10.00 in special dividends it paid out in 2021. On a regular dividend basis, its dividend payout ratio is only 16.5%. It should be ex-dividend on 05/13/22.

This huge dividend growth figure of 216% over five years is mainly due to the $10.00 in special dividends in 2021. But even if we remove those dividends, the five-year dividend growth rate is about 65%.

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Compared to its peers, RILY’s dividend yield is at the top of the heap, ~7%, versus Lazard’s (LAZ) closest yield at 5.6%. The combination of dividends and redemptions quadrupled in 2021, to $345m:

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RILY’s website

Profitability and leverage:

While Q4 21 ROA and ROE were not as strong as Q3 21, RILY’s ROE and EBITDA margin remained higher than its peers. Debt leverage increased in Q4 2021, while interest coverage soared.

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Debt and liquidity:

In June 2021, RILY entered into an agreement for a four-year, $200.0 million secured term credit facility with Nomura and Wells Fargo, and a four-year, $80.0 million revolving credit facility. In December 2021, RILY entered into a Second Incremental Amendment to the Credit Agreement for an additional $100 million.

RILY had $279 million in cash and approximately $27 million available under its credit facilities, as of 12/31/22.

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RILY’s website

Performance:

As you can see, the capital markets industry has fallen out of favor in 2022, with RILY being no exception. The traditional thinking has been that rising rates favor financials, but Mr Market disagrees so far in 2022.

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Estimates:

Still, falling prices can lead to future opportunities. RILY’s price decline has led it to an extremely low P/E of 3.77X, ~50% of its peers’ 7.58X valuation, while its EV/EBITDA of 4.39X is below 50 % of 10X peer average. Meanwhile, its 7% dividend yield is more than 2x the peer average:

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Parting Thoughts:

While these negative price performance numbers are discouraging, future opportunities may arise from a contrarian attitude. It might be time to team up with RILY insiders and start buying RILY stock.

All charts by Hidden Dividend Stocks Plus, except where noted.