Taxi Licenses Outperform Stocks, Oil and Gold

By Charles Mead
Bloomberg
Nov. 08, 2011

...but my government school teacher told me the government is here to prevent monopolies!The surging price of New York's taxi medallions and their promise of steady cash flows have sparked investor interest in the licenses and bolstered shares of a company that finances their purchase to a four-year high.

Investors are pooling funds to buy the six-inch-wide aluminum disks affixed to the hoods of cabs after two of them sold for a record $1 million each last month, said Andrew Murstein, president of Medallion Financial Corp. (TAXI) Shares of the New York-based firm have climbed 17 percent since the Oct. 19 sale, compared with a 6.4 percent gain for the Russell 2000 Financial Services Index.

"A lot of people have been loading up recently on medallions because they think it's a safe asset," Murstein said in an interview last month. The New York-based company owns about 300 medallions and plans to buy "several hundred more" in New York and other cities, he said. "These are little cash cows, constantly taking in fares and spitting out money to the owners."

A regulated supply has helped taxi permits outgain equities, oil and gold for the past two decades. With New York City unemployment at about 9 percent for over a year, more drivers will fill shifts and pay garages to drive cabs, giving medallion owners a profit of about $2,500 a month, said Simon Greenbaum, a broker at NYC Medallion Brokers Inc. That's about a 3 percent return for a $1 million medallion.

Compare that with the 2.16 effective yield on U.S. AAA- rated corporate bonds, down 75 basis points, or three quarters of a percentage point, this year, according to a Bank of America Merrill Lynch index. Yields on 10-year Treasuries have dropped 126 basis points this year to about 2.03 percent.

Million-Dollar Medallions

Nat Goldbetter, 67, who brokered the sale of the two $1 million medallions, said he fielded about 15 calls in October -- 50 percent more than usual -- from investors not involved in the taxi industry looking to put money into medallions.

Medallion Financial, which is listed on the Nasdaq Stock Market under the ticker symbol TAXI, boosted its dividend last week for the fourth time this year as third-quarter profit at Medallion Bank climbed 43 percent to $4.58 million, the company said in a Nov. 2 statement. The shares climbed 1.8 percent last week to $11.74, the highest since 2007.

The firm charges interest of about 6 percent to borrowers purchasing medallions and also earns income from leasing its own licenses, Murstein said. Each New York medallion reaps about $40,000 a year in profit, he said.

"Next week alone I have seven meetings" with potential new investors, Murstein said in a Nov. 4 e-mail.

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