4 Small-Cap And Mid-Cap Stocks With 4% Dividend Yields And Growth Potential

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Includes: DIN, FLO, RMCF, SIX
by: Bob Ciura

Summary

Investors are usually classified as growth, value, or income investors. Sometimes, an investor comes across stocks that have a mix of all these qualities.

These could be hidden gems that may offer high growth potential in addition to high dividends.

The following four stocks are highly profitable, small and mid-cap stocks, with 4% dividend yields.

There are many different types of investors, with varying goals. Income investors go for stocks that pay high dividend yields. Value investors search for stable, profitable companies whose stocks trade for less than their intrinsic value. Finally, growth investors typically prefer high-growth companies. These can often be found among small-caps and mid-caps, which are stocks with market capitalizations less than $10 billion.

Of the stocks I follow, four offer a mix of all three qualities. They are small and mid-caps, with growth potential, and fairly cheap valuations compared to the S&P 500 Index. These companies have highly profitable business models and operate in a stable industry, consumer goods. Investors with an eye for under-the-radar high yield opportunities may want to put these stocks on their watch lists for further consideration.

Rocky Mountain Chocolate Factory (NASDAQ:RMCF)

Rocky Mountain Chocolate Factory is a confectionery company with franchised stores and a retail business. There are 576 Rocky Mountain Chocolate Factory stores across the company, its subsidiaries, and its franchisees. I've been following Rocky Mountain for more than a year. I first got interested in the company when I tried their products, which I found to be high quality. Rocky Mountain uses proprietary recipes. I also like the fact that the company produces 40% of its products in its stores.

Then I got to researching the stock, and I instantly became intrigued. What is most interesting to me is that Rocky Mountain has a significant international operation. Even though it is a tiny company with a $50 million market capitalization, it actually has stores all over the world. There are Rocky Mountain stores in Canada, Japan, South Korea, the Philippines, Turkey, Saudi Arabia, and the United Arab Emirates.

Rocky Mountain's earnings were flat in the first quarter of the current fiscal year, but earnings per share rose 12% last year. Total retail sales declined 10% last quarter, because the company sold some company-owned stores and also closed some stores. However, same-store sales, which measures sales at locations open at least one year, rose 1.5% last quarter.

Going forward, I see a great deal of potential for Rocky Mountain as the company continues to open new stores, particularly in emerging markets. The long term potential is attractive, and in the meantime, investors are receiving a nice 4.6% dividend yield.

Flowers Foods (NYSE:FLO)

Flowers Foods is the second-largest bakery in North America. It produces a wide range of breads, under the Wonder, Butternut, Nature's Own, and Dave's Killer Bread brands, plus many others. Flowers Foods stock has had a rough year. It is down 28% year-to-date. The stock recently fell more than 7% on a single day when the company was hit with a lawsuit by nearly 200 of its independent distributors, who claim they should receive benefits of regular employees.

It seems to me the huge stock drop is due to the fact that the Department of Justice is also investigating the company for this practice. The negative headlines have caused sentiment to become very negative for Flowers Foods, but it is more important to focus on the underlying business itself, which remains healthy. Last quarter, Flowers Foods grew total revenue by 5.2%, and adjusted EPS rose 4%, year over year.

Even if the company receives a financial penalty resulting from the lawsuit, it should not affect the long-term health of the business. Flowers Foods is highly profitable and management still expects 4%-5.5% revenue growth this year. The headline risk may be giving investors a buying opportunity. The stock trades for a P/E of 17 and offers a 4.2% dividend yield.

DineEquity (NYSE:DIN)

DineEquity operates sit-down restaurants under the Applebee's and IHOP brands. It is a global company with restaurants in 20 countries. The stock has fallen recently due to disappointing results last quarter, when the company reported a 6.5% decline in total revenue. However, looking longer-term, DineEquity has a strong business. DineEquity's comparable sales increased 4% last year at IHOP, and 0.2% for Applebee's. It is benefiting from several economic tailwinds in the U.S., including low gas prices, low unemployment, and a healthy consumer.

The other attractive aspect of DineEquity's business model is that it is rapidly moving toward the franchise model, which is more lucrative than operating its own stores, because franchising places the renovation and maintenance expenses onto the franchisee while providing DineEquity with a steady stream of royalties. This is largely why DineEquity's free cash flow increased 18% last year.

DineEquity is in a turnaround, but investors are paid well to wait. The stock offers a hefty 4.9% dividend yield and a P/E of just 13.

Six Flags Corporation (NYSE:SIX)

Six Flags is the world's largest regional theme-park company. It is doing very well right now and has a lot of future growth potential. In the U.S., Six Flags is benefiting from a shift in consumer spending habits. Consumers, particularly Millenials, are spending more money on fun experiences and less on material items. Six Flags is thriving right now thanks to this trend. Revenue is up 11% in the first half of 2016, thanks to 7% growth in attendance and 3% growth in average guest spending. First-half revenue hit a record for the company.

Going forward, Six Flags growth will be boosted by opening parks in new markets, particularly high-growth markets such as China, where the company recently announced plans for a second Six Flags-branded theme park along with a water park. International growth is already paying off-international licensing revenue more than doubled in the first half-and there is plenty of room left for future expansion.

Six Flags is highly profitable and the stock offers a 4.6% dividend yield.

Disclaimer: This article represents the opinion of the author, who is not a licensed financial advisor. This article is intended for informational and educational purposes only, and should not be construed as investment advice to any particular individual. Readers should perform their own due diligence before making any investment decisions.

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

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.