5 Small-Cap Stocks with Big Dividends
When most investors think of the best dividend stocks, they often think of Johnson & Johnson (ticker: JNJ) or Procter and Gamble Co. ( PG). Both are massive corporations with payouts around 3 percent annually, so they spring to mind for good reason.
But for savvy investors, there is a lot of opportunity in lesser-known dividend stocks. These smaller capitalization companies often have better growth prospects than entrenched megacaps like J&J and P&G, and sometimes they have even bigger dividend payouts to boot.
Remember, small-cap dividend stocks come with more risk to cyclical trends in the economy or disruption to revenue. These five small-cap players offer big potential for dividend investors.
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Extended Stay (STAY). Extended Stay America is a hotel operator that caters to those looking for longer-term lodging. And thanks to moderate growth in the both the top and bottom line for this consumer stock, STAY has managed to climb more than 30 percent in the last 12 months versus a gain of just 14 percent or so for the broader Standard & Poor's stock index.
The best part for income investors, however, is that the reliable revenue stream from Extended Stay properties mean this $4 billion company can provide reliable dividends. That payout is almost twice that of 10-year Treasurys right now, too. It has a dividend yield of 4.2 percent.
Escalade (ESCA). Escalade is a lesser-known sporting goods brand that makes everything from archery gear to free weights to paddles for pickleball. The company is valued at about $200 million, so you would be forgiven if you haven't heard about it. But the company is growing nicely, with shares up roughly 115 percent in the last five years versus just 80 percent for the Standard & Poor's 500 index.
Its dividend payouts are growing nicely, too -- 12 cents a share per quarter currently, up from 7 cents a share at the beginning of 2012. That shows this company is committed to returning capital to shareholders as it thrives. The yield is currently 3.7 percent.
Gannett Co. (GCI). USA Today and regional newspaper publisher Gannett was spun out of a media conglomerate in 2015. There's not a lot of history for shares as a result, but one thing is clear -- a big commitment to big dividends, despite being valued at just under $1 billion in market capitalization.
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The company has a dividend yield of 7.2 percent that's more than triple the yield on 10-year Treasury bonds. The future of newspapers isn't exactly rosy in a digital age, but investors should have confidence that dividend will stick around going forward. Right now the payout is roughly 60 percent of earnings, giving ample wiggle room should profits decline.
Citizens & Northern Corp. (CZNC). Citizens & Northern is a regional bank that serves a small area from northern Pennsylvania to southern New York state. The company had been in a rut as it struggled to recover from the Great Recession, but recently has been looking better based on hopes of less burdensome financial regulations out of Washington to help lending and profits.
Of course, those same regulations should give investors confidence in the dividend as long as they last. After all, safeguards after the financial crisis demand banks prove they can afford every penny they dole out to shareholders -- so CZNC's 4.5 percent dividend is as solid as they come.
American Eagle Outfitters (AEO). Income-oriented investors need to tread carefully in retail stocks, since a lot of high dividend stocks in the space are also high risk. But investors can have faith that this retailer is much better than others.
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For starters, AEO is comfortably profitable and its 12-cent dividends are sustainable at about 60 percent of forecast earnings. Also, Wall Street has all but given up on the stock and is valuing it at just 11 times future earnings -- a big bargain compared with a typical a forward earnings multiple of about 20 for components in the S&P 500. All this while AEO is actually expected to improve both profits and sales marginally in the coming year. AEO's dividend yield is 4.2 percent.
Jeff Reeves is currently executive editor of InvestorPlace.com. He is a stock analyst and financial commentator with almost two decades of newsroom and markets experience, contributing to The Wall Street Journal network, USA Today, CNBC, TheStreet.com, Fox Business Channel and US News. Follow him on Twitter @JeffReevesIP.
