High-Yield Dividend Paying Small-Caps

Published Thu, 20 Aug 2015 12:30 CET by DividendYields.org

According to research done by TheRoyceFunds, 54% of the S&P Small-Cap 600 Stock Index have an average dividend yield 2.3%, almost in line with 2.4% of the S&P 500. The S&P 500 includes companies with an average dividend yield below 2%, whereas 38.5% of the 600 Small-Cap companies have consistently paid dividends for five straight years (at least). Furthermore, it is estimated that the average annual total return for Small-Cap Russell 2000 Index is 9.5% from 1993 to 2014, whereas the average annual total return for small-cap dividend payers is 11.2% versus 8.1% for the non-dividend payers over the same period.
Below we summarize three high-yield dividend paying small-caps from different sectors.

CMC, DRAD and SCL Price Performance Year over Year Graph
Commercial Metals Company (NYSE: CMC) is trading in the Basic Material sector of the Steel & Iron industry and engages in the manufacturing, recycling and sale of steel and metal products and services across the U.S and globally. CMC’s Q2 2015 YoY earnings growth of 364% ($61.7m from $13.3m in 2014) indicates a strong company, taking into account that, traditionally, Q2 is a slow quarter due to limited construction activity globally. CMC has conducted equipment enhancement, thus capitalizing on the seasonal slowdown and depressed energy markets to be ready for the stronger market activity in Q3 and Q4. Additionally, CMC consistently delivers dividends, which is evident in its low payout ratio. This is in spite of its relatively high D/E ratio (107.93), which is the result of mergers and acquisitions. Analysts estimate an average 3 year EPS of $1.78 and a 5 year earnings growth of 12.6%. A beta of 1.27 suggests a relatively volatile investment.

Digirad Corporation (Nasdaq: DRAD) is trading is the Healthcare sector of the Medical Appliances & Equipment. DRAD is the leading provider of diagnostic services in the U.S with a focus on in-office nuclear cardiology and ultrasound imaging services. DRAD’s high payout ratio raises a red flag concerning the company’s volatile earnings, as DRAD has zero debt, and it is justified by its strategic partnership with Perma-Fix Medical S.A and business expansion in the Polish market. Additionally, DRAD’s Q2 2015 net income of $1.1 million was in line with Q2 2014 due to high seasonality in the sales of nuclear imaging cameras, which increases the volatility of earnings. Given DRAD’s focus on strategic acquisitions that can fit within its business model and bring further growth in a financially disciplined manner, analysts estimate an average 3 year EPS of $0.19 and a 5 year earnings growth of 3.8%. A beta of 0.68 indicates a perfectly safe investment.

Name Price ($) 52 wk low 52 wk high 52 wk low % 52 wk high % Market Cap ($ b) P/E Beta Payout Ratio
Commercial Metals 16.27 12.80 18.67 27.11% -12.85% 1.88 10.52 1.27 31%
Digirad 4.09 3.41 5.48 19.91% -25.38% 0.08 22.72 0.68 105%
Stepan 46.95 36.34 55.67 29.20% -15.66% 1.05 18.62 0.68 28%

Stepan Company (NYSE: SCL) is trading in the Consumer Goods sector of the Cleaning Products industry and engages in the production and sale of specialty and intermediate chemicals to manufacturers for use in various end products globally. SCL’s successful strategic decisions on its two largest segments of surfactants and polymers led to an average growth of 26% of total operating income. These two segments, which account for 97% of the company’s total operating income, performed particularly well in the global markets. Additionally, SCL’s remaining debt is at rates lower than 4%, which justifies its low payout ratio, but it also leaves room for effective strategy implementation, earnings growth and strong dividends. Analyst consensus estimate an average 3 year EPS of $3.55 and an earnings growth of 16.71%. A beta of 0.68 suggests a non-volatile investment.