by Jeff Reeves | April 26, 2012 11:39 am
Sometimes investors feel like they have to choose between low-priced stocks and high dividend payers that can often be costly on a per-share basis. Sure, Coca-Cola (NYSE:KO) announced a 2-for-1 split to bring its share price down from almost $80 to under $40 — but not all dividend payers are willing to execute a similar move. And to many investors who have small portfolios and don’t like to buy a handful of shares, even $40 might be a bit pricey.
Thankfully, there are a handful of big dividend payers under $10 a share — if you know where to look for them. These companies are all small-cap investments, so they have more risk than blue chips like Coca-Cola. These risks include smaller operations that are not as reliable, thus affecting the safety of the dividend payout. A few of these picks also have very low trading volume — so always use a limit order when buying shares to protect yourself.
But if you’re looking for cheap stocks with big dividends, this list is a great place to start. You always should do your own research, but here are seven dividend stocks under $10 that I have identified as decent potential investments:
4/26 Open: $9.35
Market Cap: $2 billion
Let’s be clear: Arch Coal (NYSE:ACI) is no low-risk dividend pick, but a speculative investment. It has a wild 52-week range of $9.05-$35.06, with shares off 35% since mid-February alone. While this stock is under $10 right now, it remains unclear whether ACI stock is grossly oversold — or whether it will continue to drop like a rock.
As a coal producer operating in Appalachia and the Mountain West, there are a host of ugly headlines weighing on this stock — an EPA crackdown on coal, the fact that natural gas is a cheaper and cleaner energy source, and lower demand from Europe and emerging markets. Still, 2012 earnings are forecast to almost double from fiscal 2011, and the company is riding eight straight quarters of year-over-year revenue increases. A little slowdown in momentum doesn’t mean disaster, but it does mean you have to be willing to take on risk if you think Arch Coal will see a turnaround soon.
Of course, that 4.6% dividend is a nice buffer even if shares move sideways. ACI has paid dividends since 1997 and has been reliably paying 11 cents per share for four straight quarters.
4/26 Open: $5.53
Market Cap: $155 million
The Female Health Company (NASDAQ:FHCO) is a small-cap stock that trades less than 50,000 shares daily — a very risky buy. But strangely enough, FHCO actually is in the business of reducing risk for women through consumer health products that include the FC2 female condom. This isn’t some startup banking on a fad idea, though — Female Health is soundly profitable and has partnerships with institutions like public health clinics and not-for-profits.
And whatever you think about the product, the stock has paid a 5-cent dividend like clockwork since 2010 — for a yield of 4.3% at current share valuations. Sustained sales and profits since the company went public in 2009 show that while it hasn’t created a breakout product, FHCO can at least deliver consistent enough income to deliver a steady dividend.
4/26 Open: $7.32
Market Cap: $1.4 billion
A yield of almost 11% seems too good to be true, right? Well consider that this yield for Apollo Investment (NASDAQ:AINV) is calculated after a reduction in its dividend. Apollo previously paid 28 cents per quarter dating back to 2009. The reason for the cut was a quarterly loss in Q2 because of poor performance of underlying investments. The dividend payout ratio was just too much to bankroll, so avoiding a cut was a mathematical impossibility with a $300 million loss on the quarter. However, looking forward, earnings are stabilizing and the company is projected to finish the year in the black.
Hopefully you understand the risks here — invest in Apollo, and you are banking on losses stopping and dividends at worst staying steady. But if Apollo stumbles further, your yield — as well as your underlying investment — will both steadily decline.
The company is a subsidiary of Apollo Global Management (NYSE:APO), run by former Drexel Burnham Lambert banker Leon Black, and has a storied history behind it. The only question is whether the company can make that 11% yield stick.
4/26 Open: $6.48
Market Cap: $680 million
Belo Corp. (NYSE:BLC) is a pure-play television company that owns and operates 20 television stations across many different providers, including ABC, NBC, FOX and the CW. So rather than being tied to a single network’s programming, an investment in Belo is a play on the likelihood that television is going to stick around.
Obviously, in the long term, that might be an iffy prospect. The rise of streaming video and mobile devices shows that broadcast television and the related advertising are hardly cutting edge. But then again, TV didn’t kill radio, and it’s hard to imagine television disappearing altogether — let alone declining any time soon. As a result, revenues are very stable. There could even be a pop later this year tied to election advertising budgets juicing the airwaves. Regardless, the 5% dividend is a good sweetener.
4/26 Open: $9.18
Market Cap: $1.2 billion
Eagle Rock Energy Partners (NASDAQ:EROC) is one of the many energy partnerships out there. This is a natural gas play, as Eagle focuses on processing and transporting natural gas and natural gas liquids. Everyone should know by now the trouble for natural gas companies, with prices at historic lows thanks to a massive supply right now.
However, Eagle Rock is not your typical natural gas play that is exploring or “fracking” new finds. It’s simply a middleman, passing along natural gas to end-users and passing along nice dividends to shareholders. Profits are set to hum along at about 60 cents per share annually this year and next, right in line with 2011’s performance, so it’s unlikely the dividend will go down. And considering Eagle Rock’s recent track record of steadily raising dividends — from 15 cents per share in May 2011 to 20 cents a share in November 2011 to 22 cents a share payable in just a few weeks — the 9.2% yield looks like its pretty safe.
4/26 Open: $8.40
Market Cap: $590 million
Capital Product Partners LP (NASDAQ:CPLP) is one of those high-yield tanker stocks we have heard so much about in recent years — stocks that have crashed between 70% to 90% since 2007 peaks for the industry. CPLP specifically performs seaborne transportation of crude oil and refined petroleum products, edible oils and soft chemicals.
Business has been OK, but revenue has been stagnant and earnings have dried up as shipping rates have fallen and margins have been squeezed during the past few years. Still, the stock has paid dividends since 2007 and has paid 23.25 cents a share like clockwork. That adds up to an 11% yield based on current pricing. Of course, shares could continue to sink — and a dividend cut isn’t out of the question. But if the stock drifts sideways and just manages to tread water on its quarterly distributions, you’ll be nicely rewarded via dividends.
Just be warned that CPLP only trades about 200,000 shares daily, so it can jump around. Use a limit order when trading.
4/26 Open: $5.82
Market Cap: $1.4 billion
If you thought REITs in general were boring businesses, get a load of the snoozer that is DCT Industrial Trust (NYSE:DCT). It owns and operates distribution and light industrial properties located around highways in the United States and Mexico.
Collecting rent on truck warehouses is hardly a sexy enterprise, but it certainly is a stable one. DCT pays a reliable 7 cents quarterly, good for a 4.8% yield. Its revenue is locked at $245 million annually, give or take a million bucks. Put it in neutral and let the dividends roll in!
Of course, the company is slightly worse than break-even right now and has been posting small losses since 2009. However, if you believe trucking volume will pick up in the next several months as businesses and consumers get their mojo back, this could be a good recovery play. Shares already are up 13% so far in 2012. And if DCT drifts sideways? Well, the decent yield is a decent payday.
Jeff Reeves is the editor of InvestorPlace.com, and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace??.com or follow him on Twitter via @JeffReevesIP. As of this writing, Jeff Reeves did not own a position in any of the investments named here.
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