When investors think of dividend-paying stocks, they generally think of older, more established, larger companies. But income investors can find yields — and value — by looking for small stocks to buy as well. Indeed, some of the best small-cap stocks are dividend payers.
And because these stocks generally don’t get the same amount of attention as their larger peers, these small-cap plays can often be found for a better value.
Here are three small-cap stocks to buy that offer dividends and potential for strong long-term returns. All three are among the best small-cap stocks and offer above-market income as well.
3 Small Stocks to Buy That Offer High Yields: Ladder Capital (LADR)
Ladder Capital Corp (NYSE:LADR) is a mortgage REIT with an attractive business model. The company’s core focus is generating first-lien mortgages on commercial properties, and then securitizing them. That can be a risky business, but Ladder has done it well. And it has yet to experience any credit losses since its founding roughly a decade ago.
But Ladder also tacks on ownership of mortgage securities (beyond simply bundling them and securitizing them), as well as owning property directly and through securities like CMBS (commercial mortgage-backed securities). It’s a more diversified model than seen at most mREITs, and it’s been rather successful so far.
Obviously, there is some risk here should real estate soften. But Ladder’s loans and holdings are highly diversified across end markets (like multifamily, hotel, and office) and geographic region. And higher interest rates should help the company, with Ladder saying a 100-basis-point rise in LIBOR would add ~$0.15 per share in annual EPS.
Meanwhile, unlike many mREITs, Ladder is internally managed — and managed well. Just this week, Chairman Alan Fishman bought another $250,000 worth of stock.
There’s the possibility of a takeover by major shareholder Related Cos., and the company offers an 8.8% dividend yield in the meantime. There’s a lot of smart money behind LADR at the moment, and investors would be wise to follow it.
3 Small Stocks to Buy That Offer High Yields: Xperi (XPER)
A rally in shares of IP licensing company Xperi Corp (NASDAQ:XPER) over the past few sessions has moved XPER’s yield below 4%. But XPER remains attractive for both income investors and small-cap value seekers as it rebounds from recent post-earnings weakness.
Xperi licenses its technology primarily to semiconductor manufacturers, with smaller revenue streams in audio and imaging. Results of late look worrisome: the company posted a huge loss in Q1, along with a decline in revenue year-over-year.
But accounting changes are clouding the company’s reported numbers. In terms of free cash flow, XPER trades at less than 10x the low end of full-year guidance. That’s a cheap multiple for a high-margin, capital-light licensing business, particularly with some good news on the horizon.
Xperi successfully settled a lawsuit with Broadcom Inc (NASDAQ:AVGO), adding another licensing deal in the process. The HD Radio business is growing nicely in the high-end automotive space, and virtual reality supplies a potential boost in the future.
XPER isn’t a dividend growth play, as its dividend has held at $0.20 quarterly for over three years now. But a near-4% yield looks attractive on its own, and there’s a case for a rebound in the second half as accounting impacts fade, Xperi continues an aggressive share repurchase program, and the stock’s true value starts to shine through.
3 Small Stocks to Buy That Offer High Yields: B&G Foods (BGS)
Margin concerns have pressured food suppliers of late, and B&G Foods, Inc. (NYSE:BGS) hasn’t been immune. With major grocers like Kroger Co (NYSE:KR) trying to move to more profitable private-label sales, stocks like BGS have been sold off.
Again, BGS isn’t alone. Kraft Heinz Co (NASDAQ:KHC), for instance, just bounced off its lowest point since its 2015 merger. BGS was at a six-year low ahead of earnings last week, and it gained 10% on the release and has tacked on more gains since.
There’s more room for BGS to run. The stock still trades at barely 12x the midpoint of 2018 guidance. A turnaround in the company’s largest brand, Green Giant, is taking hold after years of weakness in the frozen space. BGS does have a heavy debt load, but going forward, deleveraging alone can support cash flow growth.
Meanwhile, BGS offers a very attractive 7%+ dividend yield, and Q1 results seem to suggest the company should be able to maintain that payout. If that’s the case, investors can realize strong income, while also potentially benefiting from a rebound at B&G and/or in the packaged goods space more generally.
As of this writing, Vince Martin has no positions in any securities mentioned.