Income investors have had to be nimble over the last few years due to the ultra-low interest rate environment courtesy of the Federal Reserve. Many intrepid yield investors have learned to get outside their comfort zones and pick up shares outside the usual dividend paying sectors (Telecom, Pharma, Utilities & Consumer Staples) of the market.
I think this mindset has served and will continue to serve income investors well as the low interest rate environment is likely be in place for the foreseeable future. Putting on my "creative" hat, I have come up with some dividend picks from nontraditional sectors. All selections look attractive on both a yield and value perspective. In addition, their stocks all go for under $10 a share.
I picked up some shares in RF Industries (NASDAQ:RFIL) yesterday. The company is a designer and manufacturer of innovative interconnect products and complex cable assemblies across diversified, high growth markets including wireless carriers and infrastructure, medical and industrial.
The shares sold for $14 a share late in 2013 but have fallen out of bed on dismal guidance recently. RFIL now goes for under $7 a share. The stock has become a "accidental high yielder" thanks to its recent drop and yields over four percent (4.2%).
The company posted 50 cents a share in profit in FY2013. It has a solid balance sheet with ~20% of its market capitalization represented by net cash on the balance sheet. The stock also appears to have solid technical support at just under current price levels (see chart).
I continue to like and own Education Realty Trust (NYSE:EDR). This real estate investment trust (REIT) is one of America's largest owners, developers and managers of collegiate housing. The real estate investment trust (REIT) owns or manages 71 communities in 24 states with ~40,000 beds. The shares currently go for just under $9.50 a share.
The REIT yields 4.6% and the entity has more than doubled its payouts since emerging from the financial crisis. FFO (Funds from Operations) should increase in the mid-teens in both of the next two years which should lead to further dividend growth.
Education Realty Trust has more than doubled operating cash flow since the end of FY2011 and continues to make strategic acquisitions and is seeing rent increases in the 3% to 5% range on existing properties. Given yield and growth prospects, the shares are reasonable priced at under 15x forward FFO. Numerous insiders picked up over $600K in new shares over the last half of 2013.
My highest risk/reward play in the income space is Eagle Rock Energy Partners (NASDAQ:EROC). This energy partnership has traditionally consisted of both an upstream and a midstream business. However, the company recently announced it is selling the midstream part of its business to Regency Energy Partners (NYSE:RGP) for $1.325B.
This sale has been held up by the Federal Trade Commission which has requested additional information. However, I believe the transaction eventually gets approved. This will leave the upstream business which completed a long-term deal earlier this year to deliver and sell monthly quantities of natural gas liquids to Phillips66 (NYSE:PSX) at its Sunray gas plant. This will increase the certainty of Eagle Rock's long-term revenue streams.
The stock currently goes for just $5 a share and this entity pays a better than 11% distribution yield at current levels. The three analysts that cover the shares have price targets ranging from $6.50 to $7.50 a share, all significantly above the current price of these high yielding shares.
Disclosure: I am long EDR, EROC, RFIL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.