Here's the Best Unknown High-Yield Dividend Stock to Buy Right Now With $1,000

Multibaggers and high-yield dividends don't typically go hand in hand. However, OTC Markets Group (OTCM -1.35%) may just offer both. Short for over-the-counter markets, OTC Markets lists more than 12,000 stocks on its marketplaces.

OTC Markets states that its platform "empowers companies to be public and provides a global gateway to access U.S. investors." The company's listings range from foreign businesses looking to set up American depositary receipts (ADRs) to start-ups that don't meet the qualifications needed for the larger indexes, and even pink sheet stocks in financial distress.

Although these somewhat unassuming operations may not sound like a winning proposition, OTC Markets would have turned a $1,000 investment in 2009 into nearly $21,000 today. Here's the case for why adding another $1,000 to this 4.7% dividend payer today could produce similarly impressive returns in the future.

OTC Markets: A highly profitable subscription business

OTC Markets has three product groups: corporate services (its three marketplaces), market data services (information on securities listed on OTC's markets), and OTC link (quotations, trade execution, and messaging). Operating primarily through a subscription model, the company serves professional and individual investors, as well as broker-dealers who are interested in making trades and researching the lesser-known equities OTC lists.

Thanks to this business model, the company generates roughly 85% of its sales from recurring subscriptions. This base of sales makes OTC's finances very steady and resilient, which helps explain how the company has averaged a five-year beta of just 0.5 since 2015. Beta measures the volatility of a given stock versus the broader market, with a score well below 1 indicating that OTC Markets is quite stable -- as opposed to some of the pink sheet stocks it lists on its markets.

In addition to its less volatile shares, the company maintains a robust 25% net income margin and a towering 72% return on invested capital (ROIC). This top-tier profitability hints that OTC Markets has built a moat around its operations, filling a void that goes relatively untouched by much bigger peers like Intercontinental Exchange (New York Stock Exchange) and Nasdaq (Nasdaq Stock Market).

Generating 84% of its trading volume from ADRs and non-U.S. companies on its markets, the company is well positioned to benefit from the long-term trend of foreign businesses looking to make their shares available to U.S. investors.

Image source: Getty Images.

Paying regular and special dividends for more than 10 years

Buoyed by its immense and consistent profitability, OTC Markets has paid quarterly dividends in tandem with a large special dividend annually during the past decade. The company currently has zero debt on its balance sheet, leaving management free to return the vast majority of its net income and free cash flow (FCF) to shareholders.

OTCM Free Cash Flow data by YCharts

During the past five years, OTC Markets has averaged a healthy dividend yield of roughly 4% -- all while increasing revenue and FCF by 77% and 95%, respectively.

Projected to pay a forward dividend yield of 4.8% -- assuming the company maintains its special dividends like usual -- the company's high-yield payouts give investors plenty of incentive to wait for a turnaround in the initial public offering (IPO) and venture capital markets.

A turnaround story at a discounted valuation

OTC Markets' share price more than doubled between March 2020 and the end of 2021, rising in tandem with a scorching hot IPO market in 2020 and 2021 that pulled forward two or three years' worth of transactions. However, with the notoriously cyclical IPO and venture capital markets slowing as interest rates soared, the company's stock has dropped 29% from its all-time highs.

Following this decline, the company is back to trading below its 10-year averages for its price-to-earnings (P/E) ratio and price-to-FCF ratio.

OTCM PE Ratio data by YCharts.

Now trading at this discounted valuation, and with the number of new IPOs on U.S. exchanges rising year over year for five straight months, a turnaround could be slowly building for the company's marketplaces and trading operations.

Best yet, OTC Markets recently launched overnight trading on weekdays, potentially opening its doors to numerous European and Asian broker-dealers interested in trading ADRs during their actual business hours.

Ultimately, OTC Markets, with revenue and FCF growing by 13% and 20% annually during the past decade, isn't your typical high-yield dividend stock with minimal growth.

For these reasons, OTC Markets is my favorite unknown dividend stock to buy and hold for decades.