by Jeff Reeves | May 8, 2012 6:30 am
I recently compiled a list of big-yield dividend stocks under $10, and it drew a lot of reader interest. The picks were hardly sure-things, since the nature of cheap investments with big dividends typically means these are companies that have been beaten down from previous highs or have questions about the sustainability of their payouts. But folks seemed to really like the general idea.
So I’ve gone back to the drawing board to find another seven big-yield small-caps that trade for under $10 a share. Again, these all have some risks (after all, what stocks don’t?) and I encourage you to do your own homework. Also, some are very small in size and thinly traded, requiring careful trading using limit orders to protect yourself.
But if you’re looking for ideas, I have seven more cheap, big-yield stocks for you to consider:
5/7 Close: $2.30
Market Cap: $105 million
The idea of “local” telecommunications providers in Alaska is kind of laughable. The state is massive, so the remote regions are a long way from their nearest neighbors. But aside from the small-cap size and strange customer makeup for Alaska Communications Systems (NASDAQ:ALSK), it shares a lot with AT&T (NYSE:T) and other sleepy dividend payers in the sector. Revenue never really grows, but it never really drops significantly, either. Yes, Alaska’s telecom industry is more competitive than some regions, but that’s not saying much.
Of course, it’s worth noting that despite ALSK’s attractive dividend yield, the payout has actually declined after the company slashed its payout in 2011 from 21.5 cents quarterly to a mere 5 cents. Shares crashed from the $10 range at the start of the year to under $2.50 currently. However, the move was strategic, with an eye on the long term — freeing up nearly $30 million in cash flow annually for the Anchorage-based telecom to invest in its wireless infrastructure and growth in the enterprise segment. The yield is a nice 8.7% even after the cut, but obviously any further deterioration in share prices could offset that. And the dividend is anything but a sure thing after 2011’s cut. Keep in mind the $100 million market cap and measly volume of 600,000 shares daily could whipsaw you around, so always use a limit order when trading.
5/7 Close: $6.72
Market Cap: $930 million
BGC Partners (NASDAQ:BGCP) is a “global financial intermediary,” or a broker of securities. These can include equities and commodities, as well as some of those kinky derivatives that you heard so much about during the financial crisis.
So why is BGC a buy? Well, because at around $7 a share, its 17-cent quarterly dividend gives you a yield of 10.1% While it has posted a few quarterly losses recently, revenue is strongly on the rise with nine straight quarters of year-over-year increases. And looking forward, the broader makeup of the capital markets seems to be mending. While there are fears of sovereign debt troubles in Europe and slower growth in many corners of the globe, it appears investors have been decidedly optimistic to start 2012. If that keeps up, business will get very brisk for BGC. Its dividend was bumped from 14 cents to 17 cents in mid-2011, so there could be another increase in the works if all goes well in the next several months. And if you want to buy in, hurry — BGCP goes ex-dividend on May 15.
5/7 Close: $9.32
Market Cap: $685 million
BlackRock Kelso Capital Corp. (NASDAQ:BKCC) is a “closed-end management company.” In short, BKCC is an investment firm that takes stake in small to mid-sized companies and tries to make them run better. Thus, your performance is tied to the profitability of the companies it manages.
There are a lot of reasons to have confidence in the management of this company. It carries the storied BlackRock name and is up a nice 16% so far year-to-date, in addition to dishing out a huge dividend of 26 cents quarterly — a yield of more than 11% at its current valuation under $10 a share. So what’s not to like? Well, the overall outlook of the market could spook you. If you think a crash is likely, BKCC is going to get hurt. Also, there’s always the chance that the human managers will follow past precedent where most active investment advisers lag the broader market. However, the big yield and recent strength is reason for encouragement.
5/7 Close: $3.15
Market Cap: $207 million
Alon Holdings Blue Square Israel (NYSE:BSI) is a supermarket chain that operates Mega stores in Israel as well as Blue Center e-commerce sites, and owns a few specialty retailers via a subsidiary.
This stock is just plain ol’ speculative in many respects. First, it’s small and trades a paltry 10,000 shares daily — so expect crazy volatility and always use limit orders. Secondly, it’s a retail play in Israel, so any outbreak of violence or regional unrest in the Middle East could gut sales and share prices. And thirdly, the dividend was only recently reinstated in January 2012 and the schedule of payouts is as sporadic as the amount. For instance, in 2010, BSI paid two separate dividends worth $3.12 a share. In 2011, it didn’t pay a red shekel. If 23 cents holds as an annual payout, you’ll be sitting on a 7.3% yield. The company is profitable, but earnings are as volatile as the dividend and shares are deeply in the red year-to-date, so hang onto your hat if you chase this small-time income play.
5/7 Close: $2.85
Market Cap: $2.9 billion
Chimera Investment Corp. (NYSE:CIM) has a massive headline yield of over 15% right now. So if you’re asking “what’s the catch?” then you’re probably on the right track. The catch is that this specialty finance company invests, either directly or indirectly, in residential mortgage-backed securities and commercial mortgages, among other things — obviously not a great line of work right now. CIM has flopped almost 85% since 2008 highs. Dividends also have been decidedly on the decline, from 14 cents per share in April 2011 to 13 cents late last year to just 11 cents a share in its latest payout.
But the thing is, Chimera remains soundly profitable — even if its dividend payout ratio is about 100% right now. If profits squeak upward, then the yield will at worst stay steady and could very well move even higher. That’s a big if, though, considering that EPS have been on the decline for the last three quarters … so buyer beware.
5/7 Close: $9.47
Market Cap: $515 million
Another REIT that deals in mortgage paper, Dynex Capital (NYSE:DX) throws off a great yield — even if its underlying business gives investors pause. The 11.8% yield based on a 28-cent quarterly payout, however, should make investors mighty pleased. The other thing to note is that unlike some other mortgage REITs, Dynex has no shortage of profits to share with stockholders — earning $1.41 a share in fiscal 2010 and earning $1.03 in fiscal 2011. Revenue has been on the rise for 12 straight quarters, too.
The downside? Well, math majors will note that 28 cents a quarter for its current dividend totals $1.12 a year — which is more than its total profits for 2011 and thus unsustainable. But if revenue keeps moving up and profits improve, there is no cause for alarm. Even a small dividend cut will still mean your investment has a decent payback via distributions — since as an REIT, a significant portion of profits must be returned to shareholders no matter what. Just remember that you’re dealing in a real estate stock during a horrible real estate market. That comes with very obvious (and possibly very painful) risks.
5/7 Close: $10.11
Market Cap: $840 million
Franklin Street Properties Corp. (AMEX:FSP) squeaked over the $10 hurdle while I was doing research for this article, but not by much.
FSP is a real estate investment trust, or REIT, like others on this list. As such, it must deliver 90% of its taxable income back to shareholders — meaning big dividends. But FSP isn’t in the mortgage paper business. Rather, Franklin Street owns and leases office properties mostly in the metropolitan D.C. area. The company has seen four straight quarters of revenue growth despite ending an investment banking arm in 2011, though profits admittedly have been thinner. Still, the 19-cent quarterly dividend is very reliable and worth an impressive 7.4% yield.
Volume is pretty low, around 225,000 shares daily, so use a limit order if you trade. Also note that, broadly speaking, commercial real estate hasn’t been exactly in a raging bull market. FSP is off almost 30% in the past 12 months and about 50% in the past five years … but if you’re looking for a long-term turnaround play banking on a recovery in office leasing, you could do worse than FSP.
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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