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By Bob Ciura, SureDividend.com
The Russell 2000 Index is arguably the world’s best-known benchmark for small-cap U.S. stocks.
Small-cap stocks have historically outperformed their larger counterparts. Accordingly, the Russell 2000 Index can be an intriguing place to look for new investment opportunities.
We typically rank stocks based on their five-year expected annual returns, as stated in the Sure Analysis Research Database.
But for investors primarily interested in income, it is also useful to rank small-cap stocks according to their dividend yields.
This article will rank the 20 highest-yielding small cap stocks in our coverage universe (excluding REITs, MLPs, BDCs, and royalty trusts).
Why Invest In Small-Cap Stocks?
The Russell 2000 Index contains the domestic U.S. stocks that rank 1,001 through 3,000 by descending market capitalization.
The Russell 2000 is an excellent benchmark for small-cap stocks. The average market capitalization within the Russell 2000 is ~currently $2.9 billion.
Why does this matter?
Small-cap stocks have historically outperformed large-cap stocks for two reasons.
Firstly, small-cap stocks tend to grow more quickly than their larger counterparts. There is simply less competition and more room to grow when your market capitalization is, say, $1 billion when compared to mega-cap stocks with market caps above $200 billion.
Secondly, many small-cap securities are outside the investment universes of some larger institutional investment managers. This creates less demand for shares, which reduces their prices and creates better buying opportunities.
For this reason, there are typically more mispriced investment opportunities in a small-cap index like the Russell 2000 than a large-cap stock index like the S&P 500.
The following section ranks the 20 highest-yielding small-cap stocks in the U.S. that are covered in the Sure Analysis Research Database. The stocks are ranked in order of lowest dividend yield to highest.
High Yield Small Cap #5: First of Long Island Corp. (FLIC)
Dividend Yield: 6.8%
The First of Long Island is the holding company for The First National Bank of Long Island, which is a small-sized bank.
The First of Long Island provides a range of financial services to consumers and small to medium-sized businesses. These offerings include savings accounts, mortgages, and business and consumer loans, among others.
The First of Long Island has approximately 50 branches in two Long Island counties and several NYC burrows, including Brooklyn, Manhattan, and Queens.
FLIC reported first quarter earnings results on April 25th, 2024, with results showing weakness for the period. Revenue fell 8% to $21 million while earnings-per-share of $0.20 compared unfavorably to $0.29 in the prior year.
Total deposits fell $162.6 million, or 4.7%, to $3.3 billion, but increased $55.5 million on a sequential basis. Total average loans declined 1.3% to $3.2 billion.
High Yield Small Cap #4: Washington Trust Bancorp (WASH)
Dividend Yield: 7.2%
Washington Trust was founded in 1800, making it the oldest community bank in the U.S. The bank is the largest state-charted bank in Rhode Island and has small operations in Massachusetts and Connecticut.
Washington Trust operates as a holding company, with assets totaling more than $7 billion. The bank provides additional banking services, such as savings accounts, certificates of deposit, and money market accounts to its customers as well.
The bank also offers loans for residential, commercial, consumer, and construction customers, as well as reverse mortgages.
Finally, Washington Trust has nearly $7 billion in assets under management in its wealth management business, where it provides financial planning and advisory services.
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High Yield Small Cap #3: Xerox Holdings (XRX)
Dividend Yield: 8.5%
Xerox is a technology company that designs, develops, and sells a wide range of business solutions in the United States and around the world.
Its offerings include color and multi-function printers, digital printing presses, digital services for workflow automation, content management solutions, and more.
From a relatively hardware-focused company, Xerox has developed into a more diversified enterprise over time, adding software and services segments via organic expansion and acquisitions.
As a result, non-equipment revenue contributes most of Xerox’s sales today:
In the most recent quarter, Xerox reported revenues of $1.5 billion, which was a 12.4% decrease year-over-year and lower by 13.2% in constant currency. Foreign exchange translations helped the top-line by 80 basis points on a reported basis.
High Yield Small Cap #2: B&G Foods (BGS)
Dividend Yield: 9.3%
B&G Foods was created in the late 1990s with the initial purpose of acquiring Bloch & Guggenheimer, who sold pickles, relish, and condiments. Bloch was founded in 1889. Last year, the company had just over $2 billion in sales.
Some of the company’s well-known brands include Green Giant, Ortega, Cream of Wheat, Mrs. Dash, and Back to Nature, with over 50 brands in total. The product portfolio focuses on shelf-stable, frozen and snack brands.
B&G Foods reported first-quarter 2024 results on May 8th, 2024. Quarterly revenue of $475 million declined 7% year-over-year, due mostly to lower volume and the divestiture of the Green Giant U.S. shelf-stable product line.
Adjusted earnings-per-share declined 33% year-over-year, to $0.18 per share.
B&G Foods also reduced 2024 guidance, and now expects net sales in a range of $1.955 billion to $1.985 billion (from $1.975 billion to $2.020 billion previously), and adjusted EPS between $0.75 to $0.95 (from $0.80 to $1.00 previously).
High Yield Small Cap #1: Fortitude Gold Corporation (FTCO)
Dividend Yield: 10.4%
Fortitude Gold is a gold producer, which is based in the U.S., generates 99% of its revenue from gold and targets projects with low operating costs, high returns on capital and wide margins.
Its Nevada Mining Unit consists of five high-grade gold properties located in the Walker Lane Mineral Belt. Nevada is one of the friendliest jurisdictions to miners in the world.
Fortitude Gold has grown its production at a fast pace in each of the last two years, primarily thanks to the major growth project of Isabella Pearl Mine.
As shown in the above chart, the reserves of Isabella Pearl Mine will last until approximately 2025 and then they will probably be replenished by the additional reserves of the Golden Mile Project.
The chart depicts essentially flat production in the upcoming years. As a result, the earnings of Fortitude Gold will be essentially determined by the prevailing price of gold.
On the other hand, Fortitude Gold has some attractive features for dividend investors. It is offering a monthly dividend of $0.04, which corresponds to an annualized dividend yield of 7.3%.
Final Thoughts
High yield dividend stocks have obvious appeal to income investors. The S&P 500 Index yields just ~1.3% right now on average, making high yield stocks even more attractive by comparison.
In addition, small-cap stocks could have stronger growth potential than larger competitors in their respective sectors.
Of course, investors should always do their research before buying individual stocks.
That said, the 20 stocks in this list have yields at least double the S&P 500 Index average, going all the way up to over 10%. As a result, income investors may find these 20 dividend stocks attractive.
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