SHOULD NYC MEDALLIONS BE INCLUDED IN YOUR PORTFOLIO?
July 14, 2014 | By: Johnny Duncan
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NYC taxi medallions may not be on the top of your list of investments to add to your portfolio this year, but when looking at a comparison of the returns to other investments, they may be worth at least a cursory consideration.
According to recent data from NYC’s Taxi and Limousine Commission, investments in medallions brought better returns than both gold and the Dow Jones Industrial Average, with a 15.5 percent annualized return for the past 80 years. When looking for more diversified investments, these medallions may be one alternative to include in the mix.
Recent prices for medallions have shattered records with the highest bids reaching over $1.2 million, according to a Wall Street Journal report, a far cry from the selling price of $10 in 1937. Why has the popularity of taxi medallions increased? It goes back to the simple principle of supply and demand: there are more people who want or need rides than there are cabs, so the value of the medallions is increasing.
If bidding for a medallion is not something you want to wait to do, business development and publicly traded company, Medallion Financial, with the convenient ticker symbol, TAXI, may be an alternative. Currently trading around $13, this corporate tax-exempt company is paying roughly 90 percent of its income as dividends.
Medallions are not the Apple, Google, Boston Beer, or latest technology shooting star that you can ride to riches. If you were to have been handed down a medallion purchased in the late 30s, early 40s, you might have a mini-gold mine. But you are not going to gain fantastic returns with medallions unless you buy several and lease them out. There may be some value to purchasing shares of TAXI, but the company has recently reduced its managed loan portfolio in medallions to 56 percent from last year’s 63 percent. However, some investors may find NYC medallions an attractive addition to their portfolio.
The need for taxi services is abundant and other than a complete shutdown of the city, these services should continue providing good returns for medallion owners.