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| Diversify Your Income Portfolio With Taxi Medallions http://www.taxi-driver.co.uk/phpBB2/viewtopic.php?f=1&t=22187 |
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| Author: | captain cab [ Sat May 11, 2013 2:07 pm ] |
| Post subject: | Diversify Your Income Portfolio With Taxi Medallions |
TAXI: Diversify Your Income Portfolio With Taxi Medallions by David Eller, Investment U Research Wouldn’t you like to participate in the fastest-growing asset class of the past year? Financials seem to get all the headlines as home prices increase and default rates plummet, driving the Financial Select Sector SPDR (NYSE:XLF) to 18% growth from March 2012 through March 2013. This is a good return, but it doesn’t come close to the 55% increase in the fastest-growing asset of 2012. What is it, you ask? You might use it every day if you live in a major metropolitan area… Taxi medallions. That’s right: In New York City alone, the price of taxi medallions has increased over 31% from March 2012 to March 2013, and the strengthening economies of cities like Boston and Chicago are causing prices to grow even faster. In March, on average, taxi medallions changed hands for a whopping $917,000! How can this be? There just aren’t enough medallions available. In 1937, New York offered 11,787 medallions for $10 each. Today, there are only 13,237 operating taxis. There has been price growth because there hasn’t been volume growth – resulting in an internal rate of return of 16% over 76 years. Take that, S&P fund managers… Driving a taxi is one of the few jobs that directly links income to time worked; the harder you work the more you make. Also, you don’t need a college degree, which makes the job appealing to hardworking immigrant populations. Drivers typically work 12 hour shifts six to seven days a week, saving up for a down payment to buy their own medallion rather than working for a company that captures a large portion of the wages. The historical rates of return are impressive, but there is another hidden benefit to owning a medallion as an investor. Tax law allows you to depreciate the medallion over 15 years, offering a 5% tax-free return on top of the price appreciation. The Easiest Way to Profit Huh? What’s that? You don’t want to drive a taxi? Luckily, there’s still a way to cash in on this… New York-based Medallion Financial (Nasdaq: TAXI) specializes in financing taxi medallions. In 2002, it took the step of structuring itself as a bank to take advantage of low interest rates and capture the spread between virtually free Fed lending and the high single digits it can charge for medallion financing. One of the important factors about the company is that it has never had to foreclose on a medallion. Since the medallion is directly tied to the income of the owner, this asset class has been an extremely safe investment. With all of these positives, you might wonder why the stock is so cheap. Shares are trading at a P/E of 12, and the company has been growing earnings at 15%. It currently pays a 6% dividend, which has helped keep the stock more stable than the overall market with a beta of 0.89. Today medallions represent 65% of the company’s loan portfolio. TAXI also invests in other asset-backed securities such as auto and recreational vehicle loans. As long as the economy doesn’t go into a tailspin, this appears to be a positive rather than a negative that could accelerate earnings growth. Good Investing, David Eller Editor’s Note: As David explains, Medallion has become so profitable because it leverages the spread between the Fed’s cheap money and the higher rates it can charge for loaning out taxi medallions. But our research has uncovered an even better way to leverage the power of the Federal Reserve. It’s a way to earn quick 160% gains… and huge dividends, to boot. They’re called “spread trusts.” And they may be the perfect investment for these uncertain markets we’re entering. http://www.investmentu.com/2013/May/tax ... lions.html |
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