7 Jan
3 Small Cap Dividend Stock Ideas, Over 3% Yield!
While on Morningstar, click the MARKETS tab and there you’ll find the U.S. Market Barometer.
This barometer can be toggled to the one day, 1 year, 3 year and 5 year tabs to gauge the percentage return of each market cap grid, which looks something like this –
Interestingly, over the last year, the best performing sector has been Small cap value. Even outperforming the high flying large cap growth sector.
As investors we should always be looking for opportunities wherever they may be, and I think there is clear opportunity in small cap value stocks right now.
We present you with three small cap value dividend stocks that currently yield over 3%-
#1 – SpartanNash Company (SPTN) – $922.33M Market Cap
Founded 1917, Headquartered in Grand Rapids, MI, SpartanNash is a Grocery distributor and retailer through three channels – 1)Food Distribution which supplies more than 2,100 independent grocery retailers, 2) Grocery retail with more than 145 company owned stores in 9 States and 3) Military through their MDV division suppling commissaires and exchanges.
A few important numbers–
Revenues growing – $7.74B to $9.3B since 2016 (up almost 21%)
Long term debt down 29% since 2018
0.44% outstanding diluted shares bought back since 2018
EPS $0.93 in 2017 to $2.12 in 2020 (up almost 128%)
Dividend yield 3.09%, Free Cash Flow payout ratio 18.75%
Grocery is a notoriously razor thin margin business, so SpartanNash’s net margin is only 0.73%.
But, for context Albertson’s (ACI) is 1.04% and Kroger (KR) is 0.75%. So, SpartanNash is pretty much in line with their industry peers.
Unless the robots suddenly take over the United States, we will continue to need food, and SpartanNash will be part of fulfilling that need.
#2 – National Healthcare Corp (NHC) – $1.07B Market Cap
Founded in 1971, Headquartered in Murfreesboro, TN, National Healthcare is all about skilled nursing, assisted living, independent living and homecare programs like rehab, senior and Alzheimer’s care.
They own the real estate of 13 healthcare properties leased to third party operators. National Healthcare Corp operates in 10 states, and their owned and leased properties are in the Southeastern, Northeastern and Midwestern parts of the United States.
A few important numbers –
Pretty flat revenues of $980 – $991 million 2018 – 2020
They have no long term debt
Net Income is up 155% since 2018
EPS has dropped from $3.87 to $2.74 the last 3 years
Diluted shares outstanding are up .87% from 2018 levels
3.15% dividend, only 17.6% FCF payout ratio in 2020
From a Senior Housing and Assisted Living Investors article – In 2031 the oldest baby boomer will turn 85, and life expectancies have risen sharply, from a global average of 49 years in 1955 to 72 years today.
By 2040, the global population of those aged 65-and-older will reach 1.3 billion, double what it is today.
There are questions if the “boomers” will have the cash for such luxuries in their golden years. There will be options for low income seniors and those on disability, so I think a competition for their dollars may spring up.
Senior care could continue to be an ever increasing destination for “boomer” bucks.
#3 – Sturm, Ruger & Company (RGR) – $1.23B Market Cap
Founded in 1949, Headquartered in Southport, CT, makes their moolah through two segments – firearms and castings.
A few important numbers –
Since 2018 revenue is up almost 48%
Net income is up 193.5% since 2018
EPS the last three fiscal years – 2018=$2.92, 2019=$1.85, 2020=$5.17
Shares outstanding are up 0.42% from 2018
Sturm Ruger has NO DEBT. Seriously, no debt!
4.48% dividend, TTM FCF payout ratio 37.41%
One wrinkle though – they pay a variable dividend, meaning they pay out 40% of the last quarters earnings. Knowing about a variable distribution makes planning more difficult, but won’t get the company into financial trouble, like IBM seemingly borrowing money for the dividend.
For example – Sturm Ruger paid out $1.10 in 2015, $0.82 in 2019 and $3.36 in 2021. That’s the variable dividend for you, and to use 2021 for example 1Q = $0.71, 2Q = $0.86, 3Q = $1.00, 4Q = $0.79.
I think smaller companies can remain financially healthier by paying variable dividends.
This is not ideal for dividend growth investors, but they can still have room to grow the company, not be crushed by a dividend commitment after a downturn and won’t kill the golden goose.
I am very intrigued by Sturm Ruger and as long as the USA allows their citizenry to own firearms, I think this company will continue to thrive.
Also intriguing is the concept of owning a variable dividend stock, which at this point would be somewhat of a curiosity or an oddity to the portfolio.
There you have it – 3 small cap dividend stocks paying over 3% dividend yields.
Enjoy and never stop investing in yourself!
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