In a recent post, Luck of the Irish, we cited the favorable tax treatment in Ireland (among the lowest of all industrialized countries) as a key competitive advantage for Irish companies competing on a global basis.
Continuing that theme, Nick Lanyi suggests, "Genesis Lease Ltd. (NYSE: GLS) is an Irish-based aircraft-leasing company that is benefiting from a global boom in demand for commercial airplanes -- even as the U.S. economy slows."
The editor of High-Yield International states, "Airlines increasingly lease a portion of their aircraft fleet, rather than owning them." Here's look at a company with a double-digit dividend yield that is benefiting from this trend.
"Airplanes are very expensive, and they need to be replaced every few years. Especially for smaller airlines, it makes more financial sense to pay a regular monthly fee as part of a long-term lease than to shell out the money to buy an airplane.
"In addition, the leasing company is responsible for maintaining the plane -- relieving the airline of the need to recruit, retain and pay for a maintenance staff. Also, demand for air travel fluctuates over time, and leases give airlines more ability to limit excess capacity.
"Aircraft leasing is in a strong long-term growth trend. There are currently about 18,000 commercial aircraft operating worldwide, and that number is expected to double over the next 20-25 years. Why? Because China, India, Brazil, Russia and other emerging markets are growing so rapidly. As economies expand, so does airline traffic.
"Today, about 35% of the world's commercial aircraft fleet is leased (compared to only 3% in 1980), and most industry analysts believe that number could grow over the next several years. Genesis Lease is well-positioned to take advantage of this trend.
"The company was spun off from General Electric in an IPO in 2006; although now an independent company, Genesis Lease retains the high-class management and strategic skills for which its former parent is renowned. In effect, Genesis is a holding company for General Electric's top-notch air-leasing operation.
"Unlike many brand-new companies, Genesis Lease also inherited a global network of 225 customers and other contacts that have given it excellent geographic diversification: about 38% of its business comes from each of Asia-Pacific and North America, about 15% from Latin America and most of the rest from the Middle East.
"Genesis Lease has a strong balance sheet and earns robust cash flows from its customers' regular lease payments. This cash flow allows GLS to pay a solid quarterly dividend; its most recent payout was $0.47 per share. Annualizing that payment for a full year, the stock yields a whopping 10.7%.
"Genesis Lease, along with other aircraft-leasing companies, has taken a big hit in recent months. However, the firm's outlook remains solid and its balance sheet contains a large chunk of cash. I think this represents an excellent buying opportunity for this high-yielding leader in a growing industry."
"To be sure, the slowing U.S. economy could put a damper on aircraft-lease demand in 2008. But I think continued strong growth from emerging markets will more than compensate."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
