9 small-cap dividend stocks to buy now

Income investors can benefit by looking behind larger companies.

  • By Jeff Reeves,
  • U.S. News & World Report
  • – 05/02/2019
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Many investors looking for income tend to focus on a narrow list of blue-chip stocks, thinking that these enterprises are well-established, have a rich history of generous paydays and have proven their value to investors. However, sometimes old favorites face headwinds.

From continued dividend cuts at General Electric Co. (GE) since the financial crisis to once-dominant automaker Ford Motor Co. (F) which has lost roughly 35% in share value over the last five years, being a big name is no guarantee of success. There are plenty of much smaller options that offer generous dividends and the chance of upside. Here are nine such companies with market capitalization of $2 billion or less.

Och-Ziff Capital Management Group

Though a smaller investment firm with just under $700 million in market value and roughly $31 billion in total assets under management, Och-Ziff is a respected firm with nearly three decades of experience in capital markets. OZM is best known for its alternative asset funds and credit investment funds. The company gathers assets from investors and then deploys that cash based on a proprietary strategy – keeping a bit off the top to cover their fees. OZM supports its dividends from that reliable cash flow and recently increased its payout to 20 cents a share to offer an impressive annualized yield that is two or three times the typical large-cap dividend payer.

NGL Energy Partners

NGL is one of several choices to invest in midstream energy stocks for big dividends. This Oklahoma-based partnership is valued at roughly $2 billion in market capitalization and specializes in logistics for crude oil and propane. This includes transporting crude from producers to refineries as well as providing liquid natural gas terminals and storage solutions for end-users. It's not a glamorous business moving around the energy that other folks produce and another group is ultimately using. However, it is reliable and helps support a supersized dividend from NGL shares.

Braemar Hotels & Resorts

Braemar Hotels & Resorts describes itself as a "conservatively capitalized" real estate investment trust that focuses on luxury properties. The company is relatively modest in size, with a $500 million market cap, but its limited holdings are focused on a very high-end clientele. BHR's current portfolio of 13 destinations covers almost 4,000 rooms and includes the Capital Hilton Hotel in the District of Columbia and the Ritz-Carlton St. Thomas in the Virgin Islands. As a REIT, Braemar gets significant tax breaks for a real-estate intensive business as long as it delivers at least 90% of taxable income back to shareholders. This creates a big mandate for big dividends.

Landmark Infrastructure Partners

This company is a very different kind of real estate investment. Landmark Infrastructure Partners acquires and develops properties that feature communications towers, billboards or even renewable power generation structures like wind turbines. These assets generate a steady stream of cash – and a steady stream of dividends to its shareholders. LMRK has roughly tripled its dividends since entering public markets in 2015, from a little over 13 cents a share to more than 36 cents per share each quarter at present.

Schweitzer-Mauduit International

If you don't recognize Schweitzer-Mauduit, you're not alone. This roughly $1 billion company based in Georgia specializes in paper products for unique applications such as flooring laminates, food service packaging and cigarette papers. It's a niche business, but in some ways that's the appeal of SWM stock. There aren't a whole lot of specialty paper producers anymore even though there is demand for many of these items. This company may never offer impressive year-over-year growth rates, but it pays a generous dividend that is only about half of its profits. SWM is a confident income investment, even if it is a comparatively smaller stock than popular low-risk blue chips.

USA Compression Partners

USAC is a unique energy stock that makes its money by providing compression services primarily to natural gas companies involved in hydraulic fracturing to access fossil fuel in shale fields. These customers capture natural gas, then take it to USAC to pressurize it and turn the fossil fuel into liquid that is easier to transport. The firm operates near several of the biggest shale fields, including the Marcellus field in the Northeast and the Woodford, Fayetteville and Barnett fields in the center of the country. This close proximity plus established relationships with key producers ensures consistent performance and steady dividends to shareholders.

Arbor Realty Trust

Arbor is a diversified REIT that, oddly enough, doesn't actually manage any physical real estate. Instead, the company focuses on financing and investments primarily around residential real estate including bridge and mezzanine loans for large-scale projects as well as investments in real estate-related notes and mortgage-related securities. ABR lends at a decent rate of return to back housing and apartment investments. Recent history shows ABR is pretty darn good at this strategy, with shares up nearly 60% in the last 12 months and a dividend that has grown from 15 cents each quarter at the beginning of 2016 to 27 cents as of its last distribution in February.

CatchMark Timber Trust

Most income-oriented investors are familiar with the various flavors of real estate trusts or energy-focused partnerships. Structured in a similar way, CatchMark is a timber investment that owns interests in roughly 1.6 million acres of woodlands in Florida, the Carolinas and Oregon, making money as it harvests the wood and brings it to market. CTT isn't a gigantic stock, with a market capitalization of only about $500 million. But this is a unique play as it’s tied to a much different hard asset than crude oil or real estate, and could add a nice layer of diversification to your dividend stock portfolio in addition to a significantly quarterly payday.

Fidus Investment Corp.

Fidus is a business development company that specializes in leveraged buyouts, refinancings and change of ownership transactions. Fidus is only interested in helping smaller companies grow bigger – not turnarounds or distressed situations. This philosophy remains firm even though its history includes deals across aerospace consumer products, technology and manufacturing. That interest only in companies with a growth path instead of foundering firms that it can simply slash and burn may be part of the reason for its success. Shares of Fidus are up 20% in the last year in addition to its current double-digit yield.

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