Insider buying is always an interesting topic, but rarely more so than when a high-yielding stock is questioned. Today, we’re looking at two high-yielding names that insiders are buying, and the buying is significant for more reasons than yield. In both cases, insider buying contradicts trends, including regular share sales associated with share-based compensation. The takeaway is that something changed for the insiders, and their buying is a signal for investors.
LKQ Corporation Insiders Started Buying Again
LKQ Corporation (NASDAQ: LKQ) manufactures and markets a range of aftermarket and replacement automobile parts in North America and Europe. The company’s insiders conspicuously began purchasing stock in Q2 following years of only selling. The insiders include a director, the CEO, an SVP, and a VP, bringing their holdings up to about 50% of the stock. Institutional buying is more significant. The institutions have bought this stock on balance for four consecutive quarters and now hold about 95% of the stock.
Among the drivers for this investment is sustained growth, although growth is expected to slow in 2025. Among the opportunities for inventors is the chance that the 2025 outlook is cautious. Auto sales, including replacement and aftermarket parts, are sluggish in 2024 due to high inflation and high interest rates but a change is in the wind. The FOMC is expected to lower rates soon, possibly aggressively, and will reinvigorate economic activity globally.
LKQ’s dividend is attractive, with the stock trading only 10x its earnings. The payout is worth more than 3% and comes with an expectation for distribution increases. The company has only paid dividends for three years but increased the payout twice, and the payout ratio is still very low. The payout ratio is running at less than 35% of the earnings, with earnings expected to grow, so substantial distribution increases are expected. The two increases so far were 10% and 7.5%, suggesting a high-single to low-double-digit increase is on tap for this year. The next distribution increase is due in August and will likely be announced with the Q3 results.
Insiders Buy High-Yielding Small-Cap, FutureFuel
FuturesFuel (NYSE: FF) is not a big business but has a robust capital return and stout ownership. Between executives, major shareholders, and institutions, this stock is nearly 100% owned by insiders, who keep buying more. The latest data shows four executives made purchases in June, bringing the total for execs and large shareholders to roughly 40%, with nearly 50% held by institutions.
Among the noteworthy details is that soon-to-be-retiring CEO M. Thomas is among the buyers, showing a strong conviction in the business's health and future capital return. Regarding the institutions, ownership is broad, including numerous private capital investors alongside BlackRock and Vanguard, which hold a double-digit portion of shares in their investment funds.
What is FutureFuel? FutureFuel is a small-cap biodiesel and bio-chemical company operating in the mid-West. Among the revenue streams are biodiesel sales, specialty chemicals, and on-demand chemical processing for business and industry. Highlights in 2024 include a significant contraction in revenue and margin due to deteriorating biodiesel prices and the impact of weather-related shut-downs offset by an expectation for positive cash flow and improving margin now that operations are back to normal.
The dividend is attractive with its 5% yield, but there are risks. Due to business deleveraging, the payout ratio will run above 100% in 2024, but the company’s financial strength will offset it. Robust margin over the past few years allowed for a substantial cash build and special dividends payments that more than doubled the regular yield. The company paid a special dividend in 2024, but it may be the last until business growth resumes or the margins widen. Salient details from the balance sheet include a net-cash position after the special dividend payment, no long-term debt, and ultra-low leverage with total liabilities running less than 0.25x assets.
