Would you be interested in a diversified financial services stock that has gained more than 300% during the past three years, 2,000% over the past decade, and has been returning a ton of cash to shareholders? Then consider B. Riley Financial (RILY 0.84%). Here are three reasons its stock looks like a strong buy.
1. A well-diversified portfolio
B. Riley operates across a wide array of segments within financial services, including investment banking and capital markets, wealth management, auctions and liquidations, and financial consulting. It also manages what it calls its principal investments: a communications segment that consists of telecom brands it owns including well-known internet service providers Juno and NetZero, and internet-based phone service magicJack. It has also acquired stakes in a portfolio of apparel brands such as Hurley, Limited Too, and Nanette Lapore. Most recently, B. Riley made headlines for its (rejected) offer to acquire recreational-vehicle dealer Lazydays Holdings (LAZY -1.97%).
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I like that B. Riley has such a well-diversified portfolio because it should help the company navigate through times when activity cools down in new public offerings or the mergers and acquisitions business. The company has actually been reducing its reliance on investment banking, which now provides only 52% of its revenue, a significant decline from previous years.
The company views the steady, recurring earnings it garners from wealth management, its communications businesses, and its brand portfolio as giving it the income and flexibility to take advantage of other opportunities that come up. I view this as similar to the way that Berkshire Hathaway (BRK.A -0.34%) (BRK.B -0.01%) has its steady stable of businesses like GEICO and Burlington Northern Santa Fe railroad that give it the flexibility to pursue accretive acquisitions or make favorable investments in companies.
Furthermore, while no one wants to see companies go out of business, B. Riley's liquidation and auctions business helps it weather economic downturns as it generates revenue by closing out businesses like Toys 'R' Us and JC Penney.
2. A dividend bonanza
B. Riley pays out a generous dividend with a yield of more than 6% at the current share price. The only thing better for income investors than receiving regular dividends is getting additional special dividends too. The company declared several of those in 2021, when it distributed an impressive total payout of $12.50 per share. Last year was great for B. Riley, and there's no guarantee that it will reward its shareholders quite so well again, but I like the precedent those payouts set. Plus, even in the unlikely event that no further special dividends are paid, its regular dividend is quite appealing all by itself.
3. Insiders are buying more shares
Between management and the board, insiders own 27% of the company. Even better, they keep buying more. Last week, Chief Executive Officer Bryant Riley, who founded the firm in 1997, bought $1.8 million worth of shares. I like to see CEOs buying their stock on the open market as opposed to just being given shares as part of a pay package because it shows they want even more skin in the game. Furthermore, it implies that the CEO feels confident about the company's prospects and sees the stock as undervalued. I also like to see strong insider buying because it helps keep management's interests aligned with those of shareholders.
Is B. Riley a buy?
With a nice mix of businesses and investments across the financial sector, the flexibility to make interesting investments when opportunities present themselves, generous dividend payouts, and strong insider buying, B. Riley looks like a strong buy.
