Small Cap written on sticky notes isolated on Office Desk. Stock market concept
Stocks with small dividends are very cheap right away. I’m talking about stocks trading for less than a year of sales. Yields up to 14.7%. And single-digit P/E ratios.
Why such offers? Well, because they were baton in bargain territory lately. A number of high-yielding bargains are staring us in the face.
Small companies, quite simply, are the cheapest stocks on the planet right now.
It’s great value for money, but show us the money! We’ll do it with five small-cap yields with a stellar average of 12% in performance among them. Are these trades or stocks cheap for a reason? Let’s talk.
Innovative Industrial Properties (IIPR)
Dividend yield: 10.2%
When we think of industrial real estate investment trusts, we think of properties like warehouses and logistics centers.
But Innovative Industrial Properties (IIPR) is not your typical industrial REIT.
IIPR takes care of the grass.
Innovative Industrial Properties is a rare real estate play that provides capital to the regulated cannabis industry. With its sale-leaseback program, IIPR purchases independent industrial and commercial properties (primarily marijuana cultivation facilities) and then leases them back directly, providing cannabis operators with the much-needed cash influx they can use to grow their businesses. operations.
Marijuana may still be a relatively nascent industry, but IIPR looks like an old and well-established mainstay, building a portfolio of 108 properties (covering nearly 8.9 million rentable square feet!) in 19 states.
Of course, the marijuana sector is also struggling, suffering a massive multi-year decline from its 2019 highs. IIPR has hardly been immune, losing 70% (including its generous dividend!) since its own peak at the end of 2021, despite continued solid operational improvement.
I reviewed IIPR about a year agoand my biggest problem at the time was valuation: the stock was trading at just over 13 times adjusted funds from operations (AFFO) forecasts at the time.
Since then, the shares have lost another quarter of their value.
But bottom could finally be reached for this small-cap REIT. As AFFO (and dividend) growth slows, shares trade at less than 9 times estimates, putting IIPR stock squarely in value territory. Meanwhile, payments have soared by double digits.
Kimbell Royalty Partners (KRP)
Dividend yield: 9.7%
Kimbell Royalty Partners (KRP) is a name you’ve definitely never encountered before. This roughly billion-dollar energy company doesn’t pump oil, send gas through pipelines, or sell gasoline: it simply buys and owns royalties on oil and natural gas.
That’s it.
So how does Kimbell make money? Well, it owns plots of land which it then leases to energy producers, who in turn pay both an upfront “lease bonus” as well as ongoing royalties, typically 20-25% of revenue or production.
Currently, KRP owns more than 17 million gross acres in 28 states “and every major land basin in the continental United States.” This includes formations like the Permian, Eagle Ford, and Bakken.
The one thing Kimbell shares with traditional energy plays is that they are heavily tied to energy prices. Lower oil and gas prices are problematic: they decrease royalties received by Kimbell and may cause producers to scale back operations, thereby reducing production and further reducing KRP’s profits. On the other hand, rising commodity prices tend to inflate the royalties sent to Kimbell.
So despite its very different approach to making money, KRP trades like your average energy stock.
Where Kimbell really differs is his casting.
On the one hand, because changes in energy prices can increase its profits, Kimbell has a variable dividend that keeps it from going broke when oil and gas levels decline. It’s not too uncommon – a a growing number of energy companies have adopted this model.
But more importantly, a large portion of Kimbell’s distributions are generally not cash, but rather tax-free reductions in the tax basis of each unitholder’s interest in Kimbell. Nearly 90% of distributions paid in August were structured this way.
(Also, a word of common sense: Many financial data providers list “LP” with Kimbell’s name, implying that it is a master limited partnership. This information is outdated. Kimbell n is neither an MLP nor a royalty trust: it converted to a master limited partnership (C-Corp in 2018.)
It’s difficult to assess the value of such a bizarre company, but at 9x cash available for distribution (CAD), Kimbell at least looks cheap.
Goldman Sachs BDC (GSBD)
Dividend yield: 13.1%
Analysts see the world through rose-colored glasseswhich makes their sad opinion of Goldman Sachs BDC (GSBD) all the more remarkable.
Goldman Sachs BDC is a business development company that can “draw on Goldman Sachs’ extensive resources to help evaluate potential investment opportunities.” It typically invests between $25 million and $75 million in companies with EBITDA between $5 million and $75 million per year. Currently, Goldman sees fit to hold 135 portfolio companies across 36 industries.
Also currently, GSBD is trading at a decent 6% discount to its net asset value (NAV).
The problem is that right now you’re just buying the Goldman name, but not its historical quality standard. Yes, GSBD has had periods of outperformance over time, but its trading has largely tracked that of the BDC industry and has become quite a laggard of late.
Among other issues, GSBD has had problems with its debt-to-equity ratio (currently 1.2), which has remained stubbornly above the company’s targets throughout the year. And in the second quarter, it placed two more portfolio companies on non-accruals, increasing non-accruals as a percentage of amortized cost to 1.8%, up from 1.6% in the first quarter.
For what it’s worth, it’s not all doom and gloom for this BDC. Net investment income exceeded estimates, net asset value increased and the net funded portfolio was ahead by $17 million.
Yes, GSBD offers a safe and large dividend. But without a growth catalyst, these big payouts will continue to offset the stock’s sharp declines.
Chimera Investment Corp.
Dividend yield: 14.7%
Chimera Investment Corp. is a member of one of the most profitable industries you will find: Mortgage REITs (mREITs). Rather than owning physical properties like a traditional REIT, mREITs trade on paper, that is, mortgages, mortgage-backed securities (MBS), and other instruments.
Chimera calls itself a “hybrid” mortgage REIT because it has residential mortgages, as well as agency and non-agency MBS. But let’s be clear: its activity is strongly unbalanced in mortgage loans (91%), the rest being made up mainly of residential MBS excluding agencies (8%).
mREITs are a tough business, especially when the Federal Reserve is cracking down on its easy money policies. You see, mREITs make money by borrowing “short term” (assuming short term rates are lower) and lending “long term” (if long term rates are higher, this that they do). generally are). However, Treasury yields have been inverted (long-term rates are lower than short-term rates) for about a year now.
mREITs do best when long-term rates are falling because existing mortgages become more valuable. But when rates rise – which they have for a few years now – mREITs feel the pain.
This is very much the case for Chimera, where it’s hard to see a bargain despite the fact that shares are currently trading at just 64% of book value.
CIM has had to cut its dividend twice in the past two years, from 33 cents per share quarterly to 23 cents in 2022 and then to 18 cents this year, a 45% discount that is rattling investors.
And Chimera’s struggles seem far from over. The mREIT recently reported a second-quarter revenue shortfall and acknowledged that it would need either lower interest rates, or greater scale, for its return on equity to increase into double digits.
Loop (BKE)
Dividend yield: 12.2%
The retail sector isn’t the first or fifteenth place most people would turn to for high dividends, but it offers its share of generous returns. Macy’s (M) gives 5.5%. Best Buy (BBY) gives 5.7%.
But no one can compete with Loop (BKE) Payment of more than 12%.
Buckle is a fashion retailer offering mid-to-high-end clothing, accessories and footwear. And unlike many retailers who have been battered by e-commerce, Buckle has come into its own, enjoying a profit explosion over the past three years that has seen BKE shares zigzag to several all-time highs over the past three years. of this period.
Buckle is a curious piece. On the one hand, Buckle is indeed cheap for a reason: hot growth turns into operational decline. Revenue over the past six months was down 5.9% year-over-year, while profits were down 16%. That matches full-year estimates of a 4% decline in sales and an 18% decline in profits.
On the other hand, BKE’s top and bottom lines are expected to rebound slightly next year and Buckle’s stock trades at less than eight times estimated earnings. Furthermore, it is a fundamentally sound company, with much higher margins (between 40% and 40%) than most of its competitors in the sector, not to mention slightly more cash than debt. unpaid.
Where the rubber meets the road is the dividend, and a lot of that depends on your income needs. You see, Buckle is a regular special dividend payer. Its regular payout represents just 4.2% of its yield, with the remaining 8% attributed to a special distribution of $2.65 per share made in early 2023.
Brett Owens is chief investment strategist for Contrarian perspectives. For more great income ideas, get your free copy of his latest special report: Your early retirement portfolio: huge dividends, every month, forever.
Disclosure: none