5 Hidden Dividend Gems to Buy Now

by Dan Burrows | November 22, 2013 12:35 pm

5 Hidden Dividend Gems to Buy Now

Sometimes juicy dividends come in small packages.

Gemstones185 5 Hidden Dividend Gems to Buy Now
Source: Flickr[1]

When income investors hunt for yield, they have to look in unlikely places, like small-cap and microcap stocks. Sure, companies with smaller caps can be riskier and less liquid, but that doesn’t mean they won’t be good for their payouts.

And with ultra-low interest rates making a decent return hard to come by, starving income investors need to be flexible in their hunt for yield.

Another advantage of the little guys paying dividends is that they also have the potential for excellent price appreciation. It’s much easier to grow exponentially off a smaller base, for one thing. Additionally, it just so happens that small-cap value stocks are the best-performing asset class over long periods of time.

Dividend hunting in the small-cap and microcap universe turns up a number of names with outstandingly high yields and decent prospects, too. It does not, however, reveal anything like a list of household names — which is just as well. The best opportunities are often the least well-known.

Here, then, are five of the best hidden dividend stocks we found:

PDL BioPharma

PDL 5 Hidden Dividend Gems to Buy Now[2]Dividend Yield: 6.3%
Market Cap: $1.3 billion
YTD Performance: +35%

PDL BioPharma (PDLI[3]), a small-cap biopharmaceutical company, derives most of its revenue in royalties from drug giants like Roche Holdings (RHHBY[4]) and Novartis (NVS[5]) on global net sales of products such as Avastin, Herceptin and Tysabrit’s.

That royalty stream helps fund the generous dividend of 6.7%, but it does come with risks. After all, when you manage a portfolio of patents … well, patents eventually expire, so the pipeline constantly needs to be replenished.

Fortunately, the current portfolio has been very good to investors this year. PDLI is up 35% for the year-to-date on a price basis. Throw in the dividend, and the total return comes to 38%.

Shares also look to offer an uncommonly good value, with PDLI sporting a forward price-to-earnings multiple (P/E) of just more than 4, despite having a strong long-term growth forecast of 14%.

Read More: 5 “Smart Money” Dividend Stocks to Buy[6]

Geo Group

GeoGroup185 5 Hidden Dividend Gems to Buy Now[7]Dividend Yield: 6.8%
Market Cap: $2.4 billion
YTD Performance: +15%

Geo Group (GEO[8]) is the nation’s largest operator of prisons and correctional facilities — and a good place for investors to look if they want to lock up an income stream.

Geo converted to a real estate investment trust (REIT) at the beginning of the year, meaning it has to pay out most of its earnings as dividends. Indeed, it bumped the quarterly dividend by 10% to 55 cents earlier this month. That helped boost the current yield up to 6.8%.

Geo’s stock is up just 20% for the year-to-date to lag the broader market, but factor in the dividend and the total return comes to very competitive 28% — essentially in line with the S&P 500′s total return so far this year.

At 19 times forward earnings, Geo shares aren’t exactly on sale. But given the 15% long-term growth forecast, neither are they overpriced.

Read More: 5 “Smart Money” Dividend Stocks to Buy[6]

Suburban Propane Partners

suburbanpropane185 5 Hidden Dividend Gems to Buy Now[9]Dividend Yield: 7.6%
Market Cap: $2.8 billion
YTD Performance: +18%

It’s tough to beat utilities for dividends, especially partnerships, which explains why Suburban Propane Partners (SPH[10]) throws off such an ample stream of cash.

Shares in this small-cap are up just 18% for the year-to-date, but then, this is an income play. Indeed, add in those payments and SPH is up more than 26% this year. That outpaces the S&P 500′s price gain and lags the broader market’s total return by just a percentage point.

Propane is kind of a backwater business in the energy industry, but with natural gas prices falling and propane prices rising, Suburban Propane Partners is having the last laugh.

Wall Street sees earnings per share jumping 28% this quarter and 44% this year — both of which could prove conservative if winter comes in sooner and colder than usual.

Read More: 5 “Smart Money” Dividend Stocks to Buy[6]

Collectors Universe

Collectors185 5 Hidden Dividend Gems to Buy Now[11]Dividend Yield: 8.2%
Market Cap: $134 million
YTD Performance: +57%

If you want to know what your Ryan Vogelsong-autographed baseball is worth, you go to Collectors Universe (CLCT[12]). The company deals in appraisals for everything from coins to sports memorabilia.

Not only does this micro-cap throw off a generous dividend of 8%-plus, but shares are on a tear this year thanks to some record-breaking results.

CLCT is up 57% for the year-to-date, beating the broader market by about 31 percentage points. Add in the dividend, and the total return comes to 66%.

Most importantly, a solid balance sheet with $2 per share in cash, a stable capital surplus and no long-term debt helps ensure that investors will keep collecting those fat dividends.

Read More: 5 “Smart Money” Dividend Stocks to Buy[6]

Student Transportation (STB)

StudentTransportation185 5 Hidden Dividend Gems to Buy Now[13]Dividend Yield: 8.4%
Market Cap: $518 million
YTD Performance: +3%

A small Canadian company trading on the Nasdaq, Student Transportation (STB[14]) provides school bus transportation for public and private schools, moving more than a million students every day in both the U.S and Canada.

But the company also holds investments as a non-operator in oil and gas interests, and that’s always good for a stream of cash.

STB shares are up just 2.8% so far this year, lagging the S&P 500 by a wide margin, but this is much more of an income play, anyway. After all, the dividend yields more than 8%!

STB has been inking a bunch of new contracts lately — some of which stretch out to 15 years — and forecasts the best start to a fiscal year in the company’s history.

Read More: 5 “Smart Money” Dividend Stocks to Buy[6]

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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Endnotes:
  1. Flickr: http://www.flickr.com/photos/hostingreviews/8243217303/
  2. [Image]: http://investorplace.com/wp-content/uploads/2013/08/PDL.jpg
  3. PDLI: http://studio-5.financialcontent.com/investplace/quote?Symbol=PDLI
  4. RHHBY: http://studio-5.financialcontent.com/investplace/quote?Symbol=RHHBY
  5. NVS: http://studio-5.financialcontent.com/investplace/quote?Symbol=NVS
  6. 5 “Smart Money” Dividend Stocks to Buy: http://investorplace.com/2013/11/5-smart-money-dividend-stocks/
  7. [Image]: http://investorplace.com/wp-content/uploads/2013/11/GeoGroup185.jpg
  8. GEO: http://studio-5.financialcontent.com/investplace/quote?Symbol=GEO
  9. [Image]: http://investorplace.com/wp-content/uploads/2013/10/suburbanpropane185.jpg
  10. SPH: http://studio-5.financialcontent.com/investplace/quote?Symbol=SPH
  11. [Image]: http://investorplace.com/wp-content/uploads/2012/03/Collectors185.jpg
  12. CLCT: http://studio-5.financialcontent.com/investplace/quote?Symbol=CLCT
  13. [Image]: http://investorplace.com/wp-content/uploads/2013/11/StudentTransportation185.jpg
  14. STB: http://studio-5.financialcontent.com/investplace/quote?Symbol=STB
  15. Dividend Insights e-letter: https://order.investorplace.com/?sid=FQ8102

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