Small-Cap Dividend Stocks with Big Yields
Income investors are very familiar with large cap dividend stocks. Whether it’s Johnson & Johnson (NYSE:JNJ) or The Coca-Cola Co (NYSE:KO), the market cap is well over $100.0 billion. But companies with huge market caps are not the only ones paying dividends; small-cap stocks can return value to shareholders too. In this article, we are going to take a look at 10 high-yield small-cap dividend stocks.
Before we start, keep in mind that for income investors, the dividend yield shouldn’t be the only criteria when deciding which small-cap stocks to buy. As I have said many times in this column, markets can be efficient. If a company is solid and pays sizable dividends, chances are investors will notice. And as they rush to buy shares of the company, they bid up the stock price and the dividend yield would no longer be that high.
One consequence of this is that if a stock has an abnormally large yield of, say, 30%, chances are investors don’t believe the payout is sustainable. Income investors looking for long-term investments should probably stay away from companies that may cut their payout soon.
Still, there are dividend-paying small-cap stocks that offer above-average returns. This may come from the nature of their industry. For instance, real estate investment trusts (REITs) are required, by law, to distribute at least 90% of their income to unitholders every year. Master limited partnerships (MLPs) also face distribution requirements. Unlike REITs, the required amount for an MLP is set forth in the partnership agreement, but that amount can increase over time.
Investing in small-cap stocks could also bring more upside potential, as smaller companies may have more room to grow. The return can also be higher due to their smaller market cap. For instance, if a company with a $1.0 billion market cap grows to $1.5 billion, investors would have made a 50% return. If a $100.0-billion company adds the same $500.0 million to its market cap, the return would be just 0.5%.
Of course, small-cap stocks may also carry more risk. Their business may not be as established as the mega-cap companies. Without a wide enough economic moat, it’s not clear whether a high-yield small-cap stock has the ability to keep paying investors in the long run. Therefore, while the yields on some dividend paying small cap stocks can be very attractive, it’s probably a good idea for income investors to have some large-cap blue-chip names in their dividend portfolios as well.
Now, let’s take a look at the best small cap stocks to watch in 2017. The definition of “small-cap” here is having a market capitalization of between $300.0 million and $2.0 billion.
List of Small-Cap Dividend Stocks
| Company Name | Stock Symbol | Dividend Yield |
| CBL & Associates Properties, Inc. | CBL | 10.30% |
| Government Properties Income Trust | GOV | 8.81% |
| Enviva Partners LP | EVA | 7.91% |
| World Point Terminals LP | WPT | 6.96% |
| Guess?, Inc. | GES | 6.93% |
| Sabra Health Care REIT Inc | SBRA | 6.64% |
| Greenhill & Co., Inc. | GHL | 6.02% |
| Main Street Capital Corporation | MAIN | 5.97% |
| NRG Yield, Inc. | NYLD | 5.60% |
| Orchids Paper Products Company | TIS | 4.76% |
Best Small Cap Stocks to Watch in 2017
1. CBL & Associates Properties, Inc.
CBL & Associates Properties, Inc. (NYSE:CBL) is a real estate investment trust with a focus on regional malls that are the dominant retail facility in middle market areas. The company currently owns, holds interest in, and/or manages over 140 properties in the U.S. It also develops new regional malls, open-air centers, and community centers.
CBL is a high-yield small-cap stock. With a quarterly payout of $0.265 per share, the REIT has an annual dividend yield of 10.3%.
CBL also one of the cheap small-cap stocks on the market, with a price-to-earnings multiple of just 13.74 times.
While some investors are worried about the future of physical shopping malls, this mall REIT seems to be in solid shape so far. In 2016, CBL’s same-center net operating income increased 2.3%. Moreover, its total portfolio occupancy was 94.8% as of December 31, 2016, up 120 basis points from the prior year-end. (Source: “CBL & Associates Properties Reports Results for Fourth Quarter and Full-Year 2016,” CBL & Associates Properties, Inc., February 1, 2017.)
2. Government Properties Income Trust
Government Properties Income Trust (NASDAQ:GOV) is a REIT focused on owning and operating properties that are majority leased to government tenants. With 71 properties located in 31 states and Washington D.C., totaling around 11.0-million square feet, Government Properties is the U.S. government’s biggest landlord.
Right now, the company pays quarterly dividends of $0.43 per share, giving GOV stock an annual yield of 8.81%.
The neat part about Government Properties’ business is that government tenants tend to remain in place significantly longer than those in the private sector, and that adds stability to the REIT’s revenue stream. Approximately 92% of the REIT’s annualized rental income is paid by the U.S. government, 13 state governments, and three other government agencies. (Source: “About Us,” Government Properties Income Trust, last accessed February 17, 2017.)
If being the landlord of “Uncle Sam” sounds like a good idea to you, then you should definitely check out Government Properties.
3. Enviva Partners LP
Enviva Partners LP (NYSE:EVA) is a master limited partnership. While most MLPs are in the oil and gas business, Enviva is involved in a type of biofuel: wood pellets. The partnership processes wood fiber to turn it into wood pellets. Its customers then use these pellets to replace coal in power generation.
Enviva owns and operates six plants, with a combined production capacity of almost three-million metric tons of wood pellets per year. A significant part of its wood pellets are sold through long-term, take-or-pay agreements with creditworthy customers in the U.K. and Europe.
Enviva currently pays quarterly dividends of $0.5350 per share, translating to an annual dividend yield of 7.91%. What’s more impressive is that since the partnership’s initial public offering in May 2015, Enviva has more than doubled its quarterly payout. (Source: “Enviva Partners, LP Announces Sixth Consecutive Distribution Increase,” Enviva Partners LP, February 1, 2017.)
4. World Point Terminals LP
World Point Terminals LP (NYSE:WPT) is a MLP that owns, operates, and develops terminal assets relating to the storage of light refined products, heavy refined products, and crude oil.
The partnership runs a fee-based business. Its storage facilities are located in the East Coast, Gulf Coast, and Midwest regions of the U.S. Its primary business objectives is to generate stable cash flows to help the partnership pay and grow its quarterly cash dividends.
Right now, this small cap stock distributes $0.30s per share each quarter, giving WPT stock an annual dividend yield of 6.96%.
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5. Guess?, Inc.
Guess?, Inc. (NYSE:GES) is in the fashion business. The company designs, makes, distributes, and licenses a collection of apparel, handbags, footwear, and other fashion accessories like watches, jewelry, and perfumes. Its products are sold through its own Guess branded stores and through other department and specialty stores around the world.
Due to the disappointing performance in Guess’ stock price, the company’s dividend yield looks quite attractive. Paying $0.225 per share on a quarterly basis, GES stock has an annual dividend yield of 6.93%.
While market sentiment hasn’t been that great for the fashion company, Guess is far from over. In the third quarter of the company’s fiscal 2016, revenue grew three percent. North America remains an issue, but in Europe and Asia, Guess enjoyed strong double-digit growth. (Source: “Guess?, Inc. Reports Third Quarter Results,” Guess?, Inc. November 30, 2016.)
6. Sabra Health Care REIT Inc
Sabra Health Care REIT Inc (NASDAQ:SBRA) is a self-administered and self-managed healthcare REIT. The company owns 182 real estate properties consisting of 102 skilled nursing facilities, 79 senior housing facilities, and one acute care hospital. The REIT’s portfolio also consists of 11 investments in loans receivable and 11 preferred equity investments.
Sabra Health Care REIT pays quarterly dividends of $0.42 per share, translating to an annual yield of 6.64%.
Business seems to be going well at the healthcare REIT. In the first nine months of 2016, revenue grew 15.4% year-over-year to $198.7 million. Adjusted funds from operations, or AFFO, grew 14.9% year-over-year to $117.0 million. (Source: “Sabra Reports Third Quarter 2016 Results; Reports Earnings Per Share and FFO Per Share Growth of 46% and 7%, Respectively, Over Third Quarter 2015,” Sabra Health Care REIT Inc, November 2, 2016.)
7. Greenhill & Co., Inc.
Greenhill & Co., Inc. (NYSE:GHL) is a New York-based investment bank. It provides financial advice on mergers and acquisitions, restructuring, financing, and raising capital to companies, institutions, and government across the globe.
Founded in 1996, Greenhill now has 14 offices on five continents. It is truly a global firm, with around 50% of its total historical revenue coming from outside of the U.S.
Greenhill currently has a quarterly dividend rate of $0.45 per share, giving the bank an annual dividend yield of 6.02%.
The company delivered solid results in what has been a challenging market environment. In 2016, Greenhill’s revenue increased 28% to $335.5 million, the second-highest in its history. (Source: “Greenhill & Co. Reports Fourth Quarter Earnings Per Share Of $0.74 And Annual Earnings Per Share Of $1.89,” Greenhill & Co., Inc., January 26, 2017.)
8. Main Street Capital Corporation
Most small-cap dividend stocks distribute quarterly. But for investors that need their portfolio to generate returns to cover day-to-day expenses, a dividend check every three months may not be enough. Fortunately, there are high-yield dividend stocks that pay monthly dividends. One of them is Main Street Capital Corporation (NYSE:MAIN).
Main Street Capital is a business development company (BDC) that invests in lower-middle-market companies. It has a diversified portfolio of investments in companies in consumer discretionary, energy, financials, healthcare, industrials, materials, telecommunications, and transportation industries. Note that as a BDC, Main Street Capital is required by law to not invest more than five percent of its assets in any one security.
Right now, Main Street Capital pays monthly dividends of $0.185 per share, giving MAIN stock an annual dividend yield of 5.97%.
9. NRG Yield, Inc.
NRG Yield, Inc. (NYSE:NYLD) is a yieldco created by NRG Energy Inc (NYSE:NRG) to own, operate, and acquire renewable and conventional power generation and thermal infrastructure assets.
Paying $0.26 per share on a quarterly basis, NRG Yield has an annual dividend yield of 5.6%.
As a yieldco, NRG Yield’s contracted assets help the company generate predictable cash flows. By the end of 2015, the company’s contracted generation portfolio collectively represents 4,559 net megawatts. A significant part of the company’s assets sell their output pursuant to long-term offtake agreements with creditworthy counterparties.
10. Orchids Paper Products Company
Orchids Paper Products Company (NYSEMKT:TIS) makes paper towels, bath issues, and paper napkins. Headquartered in Pryor, Oklahoma, the company provides a range of products, including away-from-home), branded, and private labels in both retail and commercial markets.
Paying $035 per share on a quarterly basis, Orchids has an annual dividend yield of 4.76%.
Orchids might be making “boring” products, but due to the nature of its business, the demand for the company’s products is relatively inelastic to what the overall economy is doing. This means that other than its impressive yield, Orchids could also be a good defensive stock for income investors.
Final Thoughts on Small-Cap Stocks
At the end of the day, keep in mind that different investors have different goals and risk profiles. Small-cap stocks may be great for some income investors, but for others, large-cap stocks should make up the bulk of their portfolio. And for those that can’t wait for a quarter between dividend payments, there are also plenty of monthly dividend stocks on the market. In a world of numerous investment vehicles, it’s important to find the ones that best match the objectives of your income portfolio.