This Connecticut-based company takes stakes in small businesses. Compass Diversified Holdings (CODI, Nasdaq) has interests in six companies, including circuit board-maker Advanced Circuits, American Furniture Manufacturing, and employment staffer Staffmark. The company currently pays a $0.34 per share quarterly dividend, which translates to an annual payment of $1.36. At today’s price, Compass yields a phenomenal 10% ($1.36/$13.06). The company’s initial public offering was in May 2006, and dividends per share have increased 29% since then. CODI shares have nearly doubled from their March lows. However, earnings have been lower in the soft economy of the past year. In the third quarter, net income fell to $2.8 million versus $6.8 million a year ago. Cash flow available for distribution fell to $11.7 million from $15.7 million. The company said that the lower cash flow was due to the impact of the slow economy on subsidiary Staffmark, which faced weak demand for staffing from businesses. While profits have declined from a year ago, all six businesses were profitable in the third quarter, and American Furniture and medical device-maker Anodyne actually increased profits over the period. In addition, earnings company-wide are improving. Net income dropped to $2.8 million in the third quarter, but was a sizable improvement from a net loss of -$40 million in the first nine months of the year. ... With business looking like it is improving, cash available for distributions should rise back above dividends paid. But for now, the company is still dipping into reserves. This situation could provide a great time for aggressive investors to lock in a double-digit yield.
Carla Pasternak, High-Yield Investing
