Income is a big part of investors' returns. Stocks, mutual funds and fixed income ideas in this column are featured because they are relatively solid in their ability to pay dividends or interest. We're giving income investors a resource to start their research for investments that give better yields with lower risk.

July 28 2010 - BGC Partners (BCGP-NASDAQ) operates as a financial intermediary to the financial markets specializing in the brokering of various financial products. It provides electronic marketplaces, including government bond markets, spot foreign exchange, foreign exchange options, and credit default swaps in various financial markets through its eSpeed- and BGC Trader- branded trading platform which can be accessed through its high speed data network, over the Internet, or third party communication networks.

BGC Partners also provides financial technology solutions, market data, and analytics related to financial instruments and markets. In addition, the company offers software that provides an end-to-end solution, including real-time and auction-based transaction processing, credit and risk management tools, and back-end processing and billing systems, as well as licenses its software to customers, which enables to distribute products, through online offerings and auctions, including private and reverse auctions.

It serves banks, professional trading firms, futures commission merchants, professional market participants, financial institutions, investment banks, brokerage firms, asset managers, hedge funds, investment analysts, and financial advisors in the United States, the United Kingdom, France, Europe, Africa, the Middle East, and other Americas. The company was founded in 1999 and is based in New York, New York.

Two things stand out about BGCP: the yield is over 10% and the Market Cap (the number of shares times the stock price) is $457.18 million. This is still a very small company but with a very big yield.

The dividend was started in 2008 with a payout of 23 cents for the year. The company reported 55 cents in earnings. In 2009, earnings dipped to 39 cents but the dividend increased to 30 cents. This year, earnings are bouncing back. 5 analysts have a consensus estimate of 58 cents, then 70 cents next year. The dividend is scheduled to be 56 cents for the next 12 months. Earnings are due out on August 4 for the second quarter. Expect 15 cents a share vs 11 cents last year. For the third quarter, look for 14 cents vs. 10 cents in the same quarter in 2009.

Management is committed to the dividend. It wants to pay 75% of its post tax distributable profits to shareholders. As earnings grow, so will the pay out. Of course, as noted in 2009, earnings can also diminish. This year and next, that doesn't seem to be the case. But when earnings disappointed in 2008 and 2009, the stock price went from $13.00 to $1.40 in about a year's time. So this is a volatile issue.

Part of the turnaround in earnings came from an increase in government and corporate debt issuance. With more volume, trading picks up, and the interest-rate division of BGCP benefits. Another reason for better volume in the future: the government will be selling its mortgage related securities creating more trading opportunities for the firm.

A major event for BCGP was the merger with eSpeed in 2008. Revenues went from $159.2 million to $1.229 billion in 2009. The company also increased its sales force, adding about 20% more salespeople after the merger. It takes a while for a salespeople to reach their full productivity. That's beginning to show as reported in the first quarter of this year. Average per broker revenue was $220,000, up from $188,000 in the fourth quarter of last year. Analysts believe further improvements are possible.

More numbers: The trailing P/E is a frightful 37 but the Forward P/E is 7.83. Price to sales ratio is .38. Price to book is 2.52. Book value is $2.21. In the last year, Operating margin was 6.66% and Profit margin was .63. Return on equity was 2.65% and Return on assets was 3.26%. There's $391 million in cash for $4.71 per share. Total debt is $166.14 million or 48% of capital. Current ratio is $2.64. Beta is a high 1.54. There are 82.97 million shares outstanding with a Float of 45.12 million. Insiders own 68.4% as of 10/09.

Income investors will love the yield here. But it comes at a price. BGCP makes money through volumes in trading of securities, especially fixed income. Trading can be very volatile. So can earnings. Management is determined to reward shareholders for taking the risks the company faces. It wants to pay 75% of after tax profits to those willing to buckle up and take the ride.

- Company Web site: www.bgcpartners.com

- Ted Allrich