Dividends are profit sharing payments, paid out by companies to stockholders, and they represent a steady income stream for investors. Amounts, of course, can vary.
There is hard and fast rule for companies to follow in determining a dividend to pay. Some never pay them out, others pay out token amounts as minor rewards for shareholders, while others make the dividend a true incentive for investors. Some companies, real estate investment trusts particularly, are required by law to pay out profits to stake owners and so routinely show high yields.
Generally, however, dividend stocks are going to be a good deal for investors. Their price appreciation is usually slower than among their non-dividend counterparts, but they make up for that with the steady yield. Among S&P 500 companies, the average yield is about 2%, making dividends, on average – slightly more lucrative than Treasury bonds, which are currently yielding between 1.5% and 1.75%. And with Wall Street’s analysts predicting a slow year for stock appreciation, dividends are looking even more attractive.
And that’s just some basic background, of course. Dividends are only factor for investors to considers in choosing their portfolio. Share gains, the stock’s history and reliability, the company’s forward prospects all count, too. Here, we’ve used the TipRanks Stock Screener tool to focus on dividends. Setting the filters to show us stocks with small market caps, and dividend yields and upside potentials both above 5%, reduced the list to 95 stocks. Here are three that income-minded investors should take note of.
Braemar Hotels & Resorts (BHR)
First up on our list is an REIT. Braemar focuses on luxury properties, in the hotel and resort segment. The company holds 13 properties across the United States, including one in the Virgin Islands. Five of the resorts are located in California. The company has a market cap of $268 million.
From an investor’s perspective, BHR shares represent a true bargain. Share prices have slipped in the last 12 months, making the current point of entry low, while the upside potential remains high (more below). With general economic conditions in the US looking strong – the January jobs numbers were excellent, and the Phase 1 trade agreement between the US and China has eased trade war fears – and spring time just around the corner, the luxury resort segment is looking better as an investment.
BHR has met or beaten expectations in the last three reported quarters. In Q3, the most recent, the company showed EPS of 29 cents, 3.5% higher than forecast, on revenues of $118.9 million. The top-line number was 2.2% above estimates, and 9% higher year-over-year. Looking forward, the Wall Street expects to see 21 cents EPS, for a 40% year-over-year gain. The company will report Q4 numbers on February 26.
The company, in compliance with tax regulations on REITs, uses its earnings to fund a high-yield dividend. The quarterly payment is 16 cents per share, or 64 cents per share annualized. This gives a yield of 7.8%, almost 4.5x higher than the S&P average. The payout ratio, an important metric that compares the dividend to the company’s earnings and is taken as a sign of payment sustainability, is a healthy 55%.
4-star analyst Tyler Batory covers BHR for Janney Montgomery, and is impressed with the company. He recently toured Braemar’s St. Thomas Ritz-Carlton hotel, and wrote, “We were impressed by the quality of the Ritz and expect it to ramp steadily this year, with more substantial growth coming in 2021 and beyond… We expect the hotel to steadily ramp this year with growth in margins and occupancy… We forecast substantial growth in 2021 and beyond.”
Batory sets a $14 price target on this stock, suggesting a whopping upside potential of 71%. His rating is a Buy, of course. (To watch Batory’s track record, click here)
All in all, BHR holds a Moderate Buy analyst consensus rating, based on 2 Buys and 1 Hold. As mentioned, shares are selling at a discount, only $8.17, but the average price target of $12 suggests a high upside growth potential of 46%. Combined with the dividend, this is a stock that income-minded investors should note closely. (See Braemar stock analysis at TipRanks)
TriplePoint Venture Growth (TPVG)
Next up is a management investment company, TriplePoint Venture. The company was formed to as the venture capital branch of TriplePoint Capital, and holds invests in a portfolio of venture growth stage target companies. TPVG focuses its efforts on tech and life sciences companies – in short, high-growth industries.
After beating quarterly earnings forecasts consistently for 6 quarters in a row, TPVG hit a stumbling block in November when it missed the EPS and revenue estimates. The numbers were still positive, with EPS at 29 cents and revenue at $15.7 million, but were below the forecasts and down year-over-year. The stock took a 10% after the report, and has not yet recovered.
TriplePoint had funds on hand to meet its dividend commitment, and paid out 36 cents in the quarter. The company has a long history of reliable dividend payments at this level, and even paid out a special, one-time dividend of 10 cents per share in December 2018. The regular payment annualizes to $1.44, with a yield of 10.4%. The payout ratio for Q3 was 125%, a sign of possible worry, but the long-term average is lower, at 87%. At that level, the dividend is easily sustainable.
Investors will see if TVPG’s dividend payout ratio will return to historical average on March 4, when the company is expected to report 40 cents EPS for Q4. Meeting that estimate would represent a 37% sequential gain, and a boon for stockholders.
JMP Securities analyst Christopher York reviewed this stock recently, and was impressed enough to initiate coverage with a Buy rating. Supporting that, he wrote, “As a leading provider of debt capital and equity co-investment solutions to a niche but rapidly growing commercial lending segment of venture-backed companies in the expansion or venture growth stage, we think TriplePoint is positioned favorably to prudently grow the investment portfolio to $750 million at low-to-mid-teens asset yields… while simultaneously managing credit risks and occasionally harvesting co-investments…”
York gives this stock a $15.50 price target, suggesting an upside of 12%. (To watch York’s track record, click here)
TPVG has the lowest average upside potential of the stocks on this list, with the $14.88 average price target representing just 7.5% growth potential from the current share price of $13.83. Remember, however, that this stock also has a dividend yield well above 10%. The combination of a steady upside and dividend five times higher than average should soothe any investor. The Moderate Buy consensus view is based on just two recent ratings, one Buy and one Hold. (See TriplePoint stock analysis at TipRanks)
BG Staffing (BGSF)
Last on today’s list is a recruitment company. Staffing is a profitable niche as the US labor market continues to tighten. January’s jobs numbers, with indications that the labor force participation rate is rising, provides a firm support for staffing agencies. BG recruits workers in the accounting, finance, information tech, light industry, and real estate fields.
BG Staffing announced earlier this month that it completed the acquisition of competing agency EdgeRock – a tech-oriented consulting and staffing firm – in a deal worth $21.6 million. The move will allow BG to offer expanded solutions in the tech staffing sector.
Of the stocks on this list, BGSF has the lowest dividend yield, at 6.23%. This is calculated from an annualized dividend of $1.20, paid out quarterly at 30 cents per share. BGSF has held the dividend at its current level for two years now; before this, it was paid out at 25 cents per quarter for three years. The reliability of the company’s payment – it has not missed a quarter in the last five years – is another attractive feature. The next payment is due on February 18.
While BGSF is the low dividend in this list, its yield is still much higher than average, and it’s supported by strong earnings. The company has beaten estimates consistently in recent quarters, with the most recent report showing EPS at 52 cents and revenue at $79.4 million. These numbers were above forecasts, and up year-over-year. The EPS is high enough to maintain the dividend payment easily going forward, with a payout ratio of 77%. Looking ahead to Q4, analysts expect to see 33 cents EPS. While lower sequentially, this does fit BGSF’s pattern – Q4 earnings are typically lower than Q3.
Roth Capital’s 5-star analyst Jeff Martin has been following BGSF, and recently reiterated his Buy rating on the stock. Supporting his bullish stance, he wrote, “We believe EdgeRock (which we understand grew more than 10% in FY19) brings growth potential for BGSF as well as management talent that can be leveraged across the Professional segment… EdgeRock generated $41mm revenue in FY19 and we believe it carries gross margins that will be accretive to the Professional segment margin of ~27%.”
Martin gives this stock a $26 price target, suggesting an upside potential of 35%. (To watch Martin’s track record, click here)
BG Staffing is a small company, with a market cap of just $198 million. Smaller companies typically pull less attention from Wall Street’s analyst corps, so it’s no surprising to see that Martin’s is the only recent review on BGSF. That’s unfortunate, because the numbers show that this stock offers investors a powerful combination of dividend yield and upside growth potential. Shares are priced affordably for the potential gains, at $19.25. (See BG Staffing stock analysis at TipRanks)