This hidden dividend grower can provide monstrous returns to your portfolio
What if you could go back in time and become the first investor in Warren Buffett's Berkshire Hathaway? Obviously, this is wishful thinking and you can only think of what you could have done with the phenomenal returns that have been generated over the decades. Berkshire's average 20% compounded returns since 1965 would easily turn $1,000 into more than $1 million for many investors.
You may have missed out on Berkshire's great run up until this point, but what if you could invest in the next Berkshire Hathaway? What if I told you that there is a company that offers similar levels of compound growth and has little Wall Street coverage at the moment? The company exists and its name is Nelnet (NYSE: NNI ). Here's why this dividend grower has what it takes to deliver consistent monster returns for your portfolio over the next few decades.
What is Nelnet?
Several decades ago, Michael Dunlap founded Nelnet as a provider of loans to college students in the United States. For years, the company has held its own in the student loan niche, making great returns through these highly reliable, government-backed loan instruments. The company went public through an initial public offering (IPO) in 2004 after years of steady growth in its student loan book.
Hidden assets will provide value
Back to the Berkshire Hathaway comparison, there's more to Nelnet than just student loans. The company uses its cash flow to build a number of subsidiaries and investments. The two most important at the moment are its educational software/payments segment and its investment in Hudl.
Nelnet sells software to school administration offices across the country to help tuition-charging schools manage payment processing. This business segment focuses on the K-12 market and has managed to gain control of this niche industry over the past decade. It's now a big business, generating $409 million in revenue and $74 million in operating profit in 2022. Earnings continued to grow, making it a new cash cow for Nelnet and confirming the company's success in diversifying away from student loans
Nelnet's investment in is very different, but could prove just as valuable. is the world's dominant software product for sports teams that need to process, store and analyze video footage of games, practices, etc. This software probably generates hundreds of millions in revenue across all of its sports segments. Nelnet owns an estimated 20% of this private enterprise and has been its main investor for many years. Not only does the company keep on its balance sheet based on low costs, but the investment could also be worth $500 million to $1 billion if goes public, which could happen within the next few years.
Outstanding historical performance
As a conglomerate, Nelnet's story can get complicated. In addition to the business segments and subsidiaries already mentioned, Nelnet also has an investment in optical communications and a solar energy subsidiary. Both could yield many positive results over the years
But then the Obama administration decided to ban private companies from making student loans, with the federal government taking over the process. This put Nelnet in a pickle because the government basically said they had to stop all of their business.
Fortunately, the change in government policy didn't mean her business disappeared overnight. Since student loans sometimes take decades to pay off, loans that originated in previous years would still be on her balance sheet, earning interest income. Today, Nelnet still has billions of dollars worth of loans from these old origins.
Ultimately, management realized the need to diversify outside of student loan service because the loan would eventually dry up. Over the past decade, Nelnet has leveraged that student loan cash flow and focused it on several segments that now make up the bulk of the business, including solar investments, education software/payment products, and a venture capital portfolio. The hidden value they create for investors makes stocks incredibly cheap today.
Resuming student loan payments
First, we need to discuss the state of his student loan business. The government imposed a moratorium on loan repayments during the pandemic, and the Biden administration made many efforts to implement student loan forgiveness for some segments of the population. Some of these efforts have been rejected by the courts. The industry has become a bit of a political football.
On September 1, the government is expected to lift the payment moratorium and ask borrowers to start repaying their loans again. This is good news for Nelnet, as it will once again receive repayments on many of the loans sitting on its balance sheet. Over the next three years, Nelnet management projects that more than $200 million will flow annually from these loans.
More importantly, with this moratorium finally ending, Nelnet's student loan servicing business can get back up and running. The company started this segment years ago when originations dried up and now manages loans for borrowers worth hundreds of billions of dollars. The segment was financially depressed due to the moratorium, but still generated an operating income of US$65 million in 2022. Over the next few years, investors should expect this segment's profitability to grow significantly, with annual earnings likely to exceed $100 million.
And what's driving these rising dividend payouts? Growth in book value per share. Including dividend payments, Nelnet has grown its book value per share at a rate of 16.6% since 2004, not far from Berkshire's 20% stake in Berkshire Hathaway. With a dirt-cheap market cap of just $3.46 billion, Nelnet is poised to crush the market if it can continue to grow book value at its historical average. As long as the current management team holds its own, you can rest assured holding Nelnet shares in your portfolio for many, many years to come.
In an ever-evolving landscape of investment opportunities, finding a hidden gem that promises significant returns can be akin to striking gold. Enter the world of dividend growth stocks—an often-overlooked avenue that boasts the potential for monster returns while offering the allure of a steady income. Among them, the hidden dividend grower emerges as an exceptional candidate to supercharge your investment portfolio.
Unlocking Dividend Growth Potential:
Dividend growth stocks have long been celebrated for their unique ability to generate substantial returns over time. These stocks not only offer investors a chance to share in the company's success, but also provide a reliable income stream that can weather market volatility. As the economy fluctuates, a steady source of income becomes a comforting aspect of any investment strategy.
One such dividend growth stock, often overshadowed by its fancier counterparts, is poised to take center stage. With a track record of consistent dividend growth and a commitment to delivering shareholder value, this hidden gem has all the makings of a monster return generator.
History of reliable performance:
This hidden dividend grower boasts a history of unwavering performance and has proven its resilience through various market cycles. Its commitment to increasing shareholder value is reflected in its consistent dividend growth, making it a reliable income generator for investors seeking stability amid market turbulence.
Strategic positioning for future success:
Market experts recognize that strategic positioning is key to tapping into the true potential of dividend growth stocks. This hidden gem has carved a niche for itself in a booming sector, capitalizing on new trends and consumer demands. As industries evolve, this dividend grower is poised to capitalize on its forward-looking strategies that potentially lead to exponential growth and exceptional returns.
Enhanced Diversification:
Adding this hidden dividend grower to your investment portfolio offers more than just potential high returns. It also reinforces diversification, a key strategy for managing risk and achieving long-term financial goals. By incorporating a mix of assets, including dividend growth stocks, investors can create a balanced portfolio that remains robust despite economic uncertainty.
In the realm of investment opportunities, the allure of a hidden dividend grower promising monstrous returns is undeniably enticing. With a history of solid performance, strategic positioning for future success and the potential to enhance diversification efforts, this hidden gem is poised to enrich your investment portfolio. As you embark on your investment journey, consider exploring the potential of this dividend growth stock—a formidable contender to generate exceptional returns while protecting your financial future hidden dividend grower, monster returns, investment portfolio, dividend growth stocks, steady income, reliable performance, shareholder value, market cycles, strategic positioning, diversification, financial goals.
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