The current market presents an opportunity for investors to buy small-cap stocks at discounted prices compared to their large-cap counterparts. Small-cap stocks are trading at just 8.8 times earnings and 83% of book value, offering attractive dividend yields ranging from 7.3% to 13.8%. This presents an opportunity for nimble individual investors to explore potentially lucrative investment options in small-cap companies.
One such small-cap stock to consider is Buckle (BKE), a fashion retailer that has seen significant growth in the past five years. While the company has recently reported a decline in revenues and profits, it still offers a generous dividend yield of 10.3%. Additionally, management has maintained a steady dividend payout, supplemented with annual special dividends, providing a solid return for shareholders.
DHT Holdings (DHT), a crude oil tanker owner and operator, offers an 8.5% dividend yield. However, investors should be cautious as the dividend is variable based on profits and has accounted for 100% of diluted earnings per share in recent months. While the stock trades at a relatively cheap valuation compared to its peers, it also carries a higher premium to net asset value estimates, indicating some risks for investors.
Two Harbors Investment (TWO), a mortgage REIT, offers a high dividend yield of 13.8%. The company deals in mortgage servicing rights and agency residential mortgage-backed securities, but its performance is heavily dependent on interest rate fluctuations. While the current dividend appears well-covered, investors should be aware of the potential impact of rising interest rates on the stock’s performance.
CION Investment (CION), a business development company, provides financing to small and mid-sized businesses, offering a dividend yield of 13.7%. The company has a diversified portfolio of investments and has demonstrated strong cash flow through its dividend payouts. Despite some uncertainty surrounding the BDC, it offers an attractive yield for income-focused investors.
Royce Value Trust (RVT) is a closed-end fund that invests in small-cap stocks through a value lens, offering a distribution rate of 7.3%. The fund has a long history of investing in small caps and currently trades at a significant discount to its net asset value. While the fund has underperformed its benchmark in the past, it presents an opportunity for investors seeking exposure to small-cap value stocks with a high yield.
Overall, small-cap stocks present an appealing opportunity for investors looking for discounted valuations and attractive dividend yields. While there are risks associated with investing in small-cap companies, diligent research and consideration of each company’s fundamentals can help identify potential opportunities for growth and income. By exploring the options within the small-cap space, investors may find overlooked gems that offer strong returns in the long run.
