Here are the best unknown high-yielding dividend stocks to buy right now for $1,000

Multibaggers and high yielding dividends don’t usually go hand in hand. However, OTC Markets Group (OTCM -4.64%) can only provide both. Short for over-the-counter markets, OTC Markets lists more than 12,000 stocks on its markets.

OTC Markets says its platform “empowers companies to go public and provides a global gateway for US investors.” The company’s listings range from foreign companies looking to set up American depositary receipts (ADRs) to start-ups that don’t meet the qualifications for larger indices and even pink stocks in financial distress.

While these somewhat modest operations may not sound like a winning proposition, OTC Markets would have turned a $1,000 investment in 2009 into nearly $21,000 today. Here’s the case why adding another $1,000 to this 4.7% dividend payer (including special dividends) today could produce equally impressive returns in the future.

OTC Markets: A very profitable subscription business

OTC Markets has three product groups: Corporate Services (its three markets), Market Data Services (information about securities listed on OTC markets), and OTC Link (quotes, trade execution and messaging). Operating primarily through a subscription model, the company serves professional and individual investors as well as broker-dealers who are interested in trading and researching OTC listings of lesser-known stocks.

Due to this business model, the company generates approximately 85% of its sales from recurring subscriptions. This sales base makes OTC financials very stable and resilient, which helps explain how the company has had a five-year average beta of just 0.5 since 2015. indicating that the OTC markets are quite stable – – unlike some of the rosy stocks it lists on its markets.

In addition to its low-volatility stock, the company maintains a robust net income margin of 25% and a whopping 72% return on invested capital (ROIC). This top profitability suggests that OTC Markets has built a moat around its operations, filling a void that remains relatively untouched by much larger peers such as Intercontinental Exchange (New York Stock Exchange) and Nasdaq (Nasdaq Stock Market).

Generating 84% of the trading volume from non-US ADRs and companies in its markets, the company is well positioned to benefit from the long-term trend of foreign businesses looking to make their shares available to US investors.

Image source: Getty Images.

Paying regular and special dividends for over 10 years

Backed by its immense and consistent profitability, OTC Markets has paid quarterly dividends in tandem with a large annual special dividend over the past decade. The company currently has zero debt on its balance sheet, leaving management free to return the vast majority of net income and free cash flow (FCF) to shareholders.

OTCM Free Cash Flow Data by YCharts

Over the past five years, OTC Markets has averaged a healthy dividend yield of about 4% — all while growing revenue and FCF by 77% and 95%, respectively.

Expected to pay a forward dividend yield of 4.7% — assuming the company maintains its special dividend — the company’s high-yield payouts give investors plenty of incentive to wait for a recovery in the initial public offering (IPO) and equity markets. venture capital.

A low-rated comeback story

The OTC Markets share price more than doubled between March 2020 and the end of 2021, rising in tandem with a hot IPO market in 2020 and 2021 that generated two to three years’ worth of deals. However, as the notoriously cyclical IPO and venture capital markets slowed as interest rates rose, the company’s shares fell 29% from all-time highs.

Following this decline, the company returned to trading below the 10-year averages for its price-to-earnings (P/E) and price-to-FCF ratios.

OTCM PE report data by YCharts.

Currently trading at this reduced valuation, and with the number of new IPOs on US exchanges increasing year-over-year for five straight months, a recovery could be slowly building for the company’s markets and trading operations.

Best of all, OTC Markets recently launched overnight weekday trading, potentially opening its doors to many European and Asian broker-dealers interested in trading ADRs during actual business hours.

Finally, OTC Markets, with earnings and FCF up 13% and 20% annually over the past decade, is not your typical high-yield dividend stock with minimal upside.

For these reasons, OTC Markets has been my favorite unknown dividend stock to buy and hold for decades.