Investing in Small-Cap Dividend Stocks
When considering investments focusing on dividend yields, many investors gravitate towards large-cap stocks. However, small-cap stocks can also present worthwhile opportunities for those seeking dividend income.
Small-cap stocks typically have market capitalizations below $2 billion and are often linked to growth potential. Yet, there are several small-cap companies that reward shareholders with consistent dividend payments, making them attractive options for investors.
Here, we delve into three small-cap stocks that currently boast low valuations and yield dividends significantly above the average of the S&P 500 Index.
1. Northwest Natural Holding (NWN)
Founded in 1859, Northwest Natural (NYSE: NWN) has transitioned from a small utility to a major player in the public utility sector. This company operates in the Pacific Northwest, focusing on delivering natural gas to its customers, which has enabled it to increase its dividend for an impressive 70 consecutive years. Northwest Natural's current market capitalization stands at approximately $1.9 billion.
The latest financial results revealed a net loss of $0.73 per share for the third quarter of the fiscal year, a slight decrease from the previous year's loss. However, through the first nine months of the year, the company’s net income rose to $1.36 per share, reflecting solid growth compared to the previous year.
Revenue surged to about $895.2 million, a significant increase driven by acquisitions and rate hikes. The company added over 95,000 new utility connections, achieving a growth rate of 10.9% largely due to its acquisition of SiEnergy.
Northwest Natural anticipates that its full-year earnings per share for the year will exceed expectations. The company maintains a long-term EPS growth target of 4% to 6% annually, showcasing strong financial health. With a payout ratio of around two-thirds, the company can sustain its dividend initiatives, currently yielding 4.1%.
2. Power Integrations Inc. (POWI)
Power Integrations (NASDAQ: POWI) specializes in high-performance electronic components used in high-voltage power conversion systems. With a diverse range of products, including the InnoSwitch and LYTSwitch integrated circuits, the company focuses on enhancing energy efficiency and reducing electronic waste.
In the recent earnings call, Power Integrations reported Q3 revenues of $118.9 million, marking a 3% increase from both the previous quarter and the previous year. This growth is attributed to a strong performance in the industrial sector, which now represents a significant portion of the company’s sales.
The company also expects to see strong performance in the upcoming quarter, projecting revenues between $100 million and $105 million, with a consistent gross margin. Power Integrations’ long standing commitment to innovation has resulted in a robust portfolio of over 2000 patents, allowing it to maintain a competitive edge.
With a historical record of raising dividends for 13 years, Power Integrations currently offers a yield of 2.4%, making it a reliable choice for income-seeking investors.
3. Federal Agricultural Mortgage Corp. (AGM)
Known as Farmer Mac, the Federal Agricultural Mortgage (NYSE: AGM) is a federally chartered corporation focused on supporting American agriculture and rural communities by facilitating access to low-cost financing options. This nonprofit institution blends private and public funding to help agricultural lenders and businesses.
Over its 30-year history, Farmer Mac has funded loans exceeding $93 billion to rural borrowers across the United States, thereby enhancing the financial stability of agricultural communities. Current market capitalization stands at approximately $1.7 billion.
In its recent quarterly financial report, the company declared a $1.50 per share dividend, representing a 7% increase, signifying its 14th consecutive annual dividend hike. The corporation reported core EPS of $4.52, up 10% year-over-year, alongside a 13% rise in net interest income.
Farmer Mac’s robust earnings growth, coupled with a consistent dividend increase of 27% annually since 2015, emphasizes its commitment to providing returns to shareholders. With a well-covered payout ratio, it is well-positioned to continue its dividend growth in the coming years.
Frequently Asked Questions
What are small-cap stocks?
Small-cap stocks refer to companies with a market capitalization typically below $2 billion. They are generally associated with growth potential.
Why should investors consider small-cap dividend stocks?
Small-cap dividend stocks can offer attractive yields and growth opportunities, making them appealing for investors seeking income and capital appreciation.
How does Northwest Natural Holding sustain its dividends?
Northwest Natural has consistently grown its dividends over 70 years due to its stable revenue generation from utility services and a solid financial position.
What products does Power Integrations manufacture?
Power Integrations designs high-performance components for power conversion systems, focusing on energy efficiency with its InnoSwitch and LYTSwitch product lines.
What is Farmer Mac’s mission?
Farmer Mac aims to provide low-cost financing solutions to American agriculture and rural communities, enhancing access to capital through private and public funding.
