7 Small Caps Offering Yields Over 7.5%

by: Kevin Quon

As interest rates remain suppressed, and additional federal intervention appears to be looming around the corner, the search for income has been on the mind of many investors. Senior citizens reliant on income who are finding out that their banks are offering less than 1% returns in a online savings account are sure to note that Certificates of Deposits aren't faring much better with their current locked-in rates. Even the 30-year US Treasury yield, offering over 4.5% in early 2011, has dropped significantly down to 3.04% as of the time of writing.

As a result, investors are turning back to the stock market they earlier abandoned to find higher income. For many, their search will take them to large, stable companies that offer consistent high-yield returns. After all, there is an abundance of hard-hit equities that can offer a diversified approach to a stable high-yield portfolio as seen in this linked example.

Yet the search for yield does not necessarily have to stop at companies with large capitalizations. Smaller companies with growth and high payouts may be useful assets to supplement any portfolio looking to add a bit more risk and potential for capital appreciation. It goes without saying that the stability of the dividend may be at higher risk at these levels. However, for patient investors able to adequately screen out the dangers they're unwilling to invest in, there is utility in being able to identify new sources of income through such equities.

The following list places a side-by-side comparison of several publicly traded companies with market capitalizations under $500 Million. All of these companies have in the past paid out rates that currently amount to a 7.5% dividend or above. Some of these companies might be in industries experiencing troubling circumstances that have allowed for their share prices to fall over the past few months. A look at the quarterly revenue growth rate on an annualized basis can offer insight into a company's well-being. All numbers are reported as of January 19, 2012.

Company MCap Rev. Growth% Div%
MV Oil (NYSE:MVO) $474 M 7.8% 8.7%
Gladstone Investment (NASDAQ:GAIN) $171 M 17.0% 7.9%
North European Oil (NYSE:NRT) $289 M 13.1% 8.4%
Cherokee (NASDAQ:CHKE) $89 M (21.8%) 7.5%
Globus Maritime (NASDAQ:GLBS) $44 M 6.7% 14.6%
One Liberty Properties (NYSE:OLP) $250 M 6.5% 7.7%
City Telecom (CTEL) $396 M 8.5% 7.6%

Several important considerations are in order in regards to these companies:

  • MV Oil and North European Oil derive their earnings from net profit interests and royalty agreements. As long as the oil and gas flow, investors can expect high payouts for these companies. A similar concept stands true for Cherokee that derives a significant of portion of its revenues from licensing of brand name consumer products.
  • Gladstone specializes in buyout and recapitalization financing, thereby allowing its business model to be dependent on the health of its portfolio companies.
  • One Liberty is a REIT that is required to distribute 90% of its taxable income to its shareholders.
  • City Telecom has seen severe downward pressure as a small cap Chinese company trading on the US markets, which as a sector in itself had been bombarded with rampant fears of fraudulent activity in early 2011.
  • Globus Maritime operates as a dry bulk shipping company, an industry which has seen much better days according to the current shipping rates reflected on the Baltic Dry Index. With half of its fleet possibly coming off chartered rates this month, the company may face the troubles of the industry that created too much supply in an environment of falling demand. Yet to quote CEO George Karageorgio from the latest quarterly report (released November 2011), he states:

Despite the difficult market conditions, we have the ability to take advantage of accretive fleet expansion opportunities based on the strength of our balance sheet... Thanks to the modern fleet, the efficient, in-house, cost effective technical and commercial management, the moderate leverage, and our experienced management team, we believe that Globus is insulated from much of the current market turbulence, allowing for us to grow the Company.

Nevertheless, despite having a book of $13.87/share, and continually paying out a hefty dividend, Globus currently trades at a meager $4.41 in an understandable expression of market fear.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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