Overall, I am always in favor of holding some penny stocks in the portfolio. First and foremost, if the business gains traction, there is ample scope for stock upside. Furthermore, there are penny stocks that have been paying regular dividends. And these stocks are attractive for income investors.
As a general definition, penny stocks are ones that trade under $5 per share. And in this article, I have focused on penny stocks with a relatively low market capitalization, and ones from the energy and precious metal sectors. I believe that these sectors have positive tailwinds and dividends can possibly increase in the coming quarters.
That said, let’s talk about these seven penny stocks that pay dividends and are worth adding in your portfolio. They are:
- Evolution Petroleum (NYSEAMERICAN:EPM)
- Gold Resource (NYSEAMERICAN:GORO)
- Nordic American Tankers (NYSE:NAT)
- Harmony Gold Mining (NYSE:HMY)
- Deswell Industries (NASDAQ:DSWL)
- American Shipping Company (OTCMKTS:ASCJF)
- PHX Minerals (NYSE:PHX)
Now, let’s dive in and take a closer look at each one.
Penny Stocks To Buy That Pay Dividends: Evolution Petroleum (EPM)
With oil price trending higher, it’s a good time to remain invested in oil and gas stocks. Among penny stocks, EPM stock looks attractive. In the last six months, the stock has trended higher by 69%. Additionally, the company pays an annual dividend of 20 cents, which translates into a dividend yield of 3.9%.
For the fourth quarter of 2020, Evolution Petroleum reported of 1,708boepd. Even if production sustains around current levels, cash flows are likely to increase on higher oil price.
It’s worth noting that Evolution has a strong balance sheet with zero net-debt. Additionally, the company has $30 million in available credit facility. In March 2021, the company acquired non-operated oil and gas assets in Barnett Shale.
As a part of the growth strategy, Evolution is looking for further acquisition. The focus is on producing assets than assets at an exploration stage. This is likely to ensure that cash flows remain stable and dividends sustain. As a matter of fact, the company has paid dividends for the last 30 quarters. Further, with current proved reserves (pro-forma) of 23.0mmboe, there is clear cash flow visibility with Brent oil above $70 per barrel.
Gold Resource (GORO)
As expansionary monetary policies continue with economic growth accelerating, inflation is a big threat. It’s likely that precious metals like gold and silver will trend higher in the foreseeable future. This makes GORO stock attractive among penny stocks that pay dividends.
Currently, the stock has a dividend yield of 1.5%. However, if gold does trend higher, stock upside and higher dividends seem likely.
For the first quarter of 2021, the company reported production of 6,097 ounces of gold and 307,610 ounces of silver. In addition, the company is also in the production of copper, lead and zinc.
For Q1 2021, the company reported an all-in-sustaining-cost of $937 an ounce. With gold trading near $1,800 an ounce, the company is likely to continue reporting positive cash flows. For the quarter, operating cash flow was $6.8 million.
Another point to note is that the company has a large land position. The focus is therefore on an organic pipeline of developmental projects in the asset. With a healthy balance sheet and positive cash flows, steady production growth seems likely.
Penny Stocks To Buy That Pay Dividends: Nordic American Tankers (NAT)
The company is an owner and operator of crude oil tankers. As of Q1 2021, Nordic American had a fleet of 25 Suezmax tankers, which includes 2 tankers under construction.
From a dividend perspective, NAT stock has an annual dividend of 28 cents, which implies a dividend yield of 8.1%. The company’s stock has, however, declined by 23% in the last 12 months.
With relatively weak economic activity coupled with production cuts by the OPEC, the tanker market was negatively impacted. However, as global GDP growth gains traction, Nordic American is positioned for a turnaround.
As the demand for oil gradually increases, it’s likely that OPEC production cut will also ease. This will translate into higher time-charter rate in the next few quarters.
As of March 2021, the company reported long-term debt of $329 million. However, the company’s fleet value for the same period was $844 million.
This implies a loan-to-value of 39%. Therefore, Nordic American still has ample financial flexibility. Further, as time charter rates increase, the fleet value is also likely to improve.
Overall, the worst seems to be over for Nordic American. With possibility of improved fleet utilization and time charter rates, dividends can also increase in the next few quarters.
Harmony Gold Mining (HMY)
HMY stock is another gold mining stock that looks attractive among penny stocks. Currently, the stock offers a dividend yield of 1.8% and it’s likely that dividends will increase in the coming quarters.
Recently, the company reported results, which showed strong improvement in EBITDA and margins. For the first nine months of fiscal year 2021, the company’s EBITDA was higher by 360% on a year-over-year (YOY) basis. For the same period, EBITDA margin was 31% as compared to 9% in the comparable period in FY2020. If gold does trend higher on inflation, EBITDA margin can possibly expand further in the next few quarters.
It’s also worth noting that as of December 2020, the company reported 169.8Moz in mineral resources. Additionally, the company had 43.8Moz in mineral reserves. With a strong asset base, the company is positioned to ramp-up production to benefit from higher gold price.
From a balance sheet perspective, the company’s net-debt-to-EBITDA ratio was 0.1. This provides ample financial flexibility to invest in production growth and asset base expansion. Further, this underscores the view that dividends are sustainable even if gold trades in the range of $1,800 to $2,000 an ounce.
Penny Stocks To Buy That Pay Dividends: Deswell Industries (DSWL)
DSWL stock has been in an uptrend with returns of 68% in the last six months. The company recently announced a semi-annual dividend of 20 cents per share. At a current price of $4.75, it implies a dividend yield of 4.2%.
As an overview, the company is in the manufacturing of injection-molded plastic parts, electronic products and sub-assemblies, among others. For the second half of 2021, the company reported sales growth of 34.5% to $37.2 million. For the same period, the company’s gross margin expanded by 120 basis points to 20.4%.
In terms of growth triggers, the company’s products find application in telephones, audio equipment, home audio products, and internet-of-things products. Segments such as Internet-of-Things are likely to ensure that healthy top-line growth sustains.
It’s also important to note that the company reported healthy growth amidst the pandemic. As the global economy recovers, it’s very likely that top-line growth will accelerate. I will not be surprised if dividends increase further in the coming year.
American Shipping Company (ASCJF)
ASCJF stock has been in an uptrend with an upside of 19% in the last six months. The stock offers an annualized dividend of 40 cents, which implies a dividend yield of 10.7% at a current stock price of $3.60.
As an overview, the company has nine modern handy size product tankers and one modern shuttle tanker. The fleet is on a long term bareboat charter with Overseas Shipholding Group (NYSE:OSG). The bareboat charter ensures clear revenue and cash flow visibility. Currently, American Shipping receives annual fixed revenue of $88 million.
For Q1 2021, the company reported operating revenue of $21.7 million. For the same period, the company’s normalized EBITDA was $21.3 million.
Another positive is that Overseas Shipholding has deployed the fleet to end users that include BP (NYSE:BP), Marathon Oil (NYSE:MRO) and Chevron (NYSE:CVX). With strong counter-parties and with positive tailwinds for the oil and gas industry, it’s likely that charter agreements will extend. In particular, with gradual economic recovery.
It’s important to mention here that Overseas Shipholding has evergreen extension options. Therefore, five bareboat charter contracts expiring in December 2022 does not seem to be a significant risk factor.
Penny Stocks To Buy That Pay Dividends: PHX Minerals (PHX)
PHX stock has been in an uptrend with higher oil and gas prices. In the last six months, the stock has returned 51%. The stock also offers a dividend yield of 1.1%.
For Q2 2021, the company reported net production of 25.52Mmcfe/d with 7,275 wells on production. For the same period, the company’s adjusted EBITDA was $3.4 million. An important point to note is that the company has 2,105 undrilled locations. This provides ample scope for production upside.
From a valuation perspective, the PV-10 value of proved reserves was $103.9 million. Further, the PV-10 value of 3P reserves was $230.8 million. PHX stock currently trades at a market capitalization of $101 million. Clearly, the stock looks attractively valued as it continues to convert resources to 1P or 2P reserves.
In April 2021, PHX Minerals announced the acquisition of 2,698 net royalty acres in the Southern SCOOP play. This acquisition adds an estimated 613 gross undrilled locations. This would further add to the company’s reserve valuation.
Overall, PHX stock looks attractive for further upside and possibly higher dividends as sentiments remain positive for the energy sector.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.