Are These Small Caps With High Dividends A Safe Bet?

Published Tue, 01 Mar 2016 17:00 CET by DividendYields.org

Small caps with high dividend yields can be a win-win situation for value investors, because they receive a decent dividend without compromising growth. In fact, small caps with high dividends offer the potential for long-term gains and income in the form of a dividend.
Furthermore, small caps have historically outperformed large caps, because small caps have a greater potential for growth. Also, dividend stocks that have been outperformers over the long term, also tend to provide a cushion against price volatility and economic uncertainty. Investing in small caps with high dividend yields can be a safe choice in a fluctuating market environment.
This article discusses three small cap stocks that trade in different industries, with a market capitalization of less than $1 billion and an average dividend yield of 27%. Although all three stocks have underperformed the market YoY, they have strong fundamentals and they consistently deliver strong dividends.

Archrock Partners LP, Medley Capital and OCI Partners LP YoY Stock Performance Graph
Archrock Partners LP (Nasdaq: APLP) is a Houston, Texas-based Master Limited Partnership (MLP) that engages in the designing, sourcing, owning, installing, operating, servicing, repairing and maintaining equipment to provide natural gas contracts to customers across the United States. Through its subsidiaries, Archrock Partners monitors compression services requirements over time to provide the necessary modifications to the level of services and related equipment. The company serves a network consisting of a range of companies operating in the oil and natural gas industry, including natural gas producers, processors, gatherers, transporters, and storage providers.

FY 2015 Results: Compared to 2014, Archrock Partners has delivered strong results in 2015. Revenues reached $656.8 million, up 13.1% YoY from $518.0 million, whereas operating income was $315.0 million, up 26.5% YoY from $249.0 million and net income reached $83.0 million, up 71.1% YoY from $48.5 million in the same period last year. Moreover, in 2015, excluded items include a non-cash goodwill deficiency of $127.8 million, a non-cash long-lived asset deficiencies of $39.0 million, and acquisition costs of $0.3 million. Also, in the fourth quarter, Archrock Partners continued to demonstrate an established stability of production-related services in spite of the challenging market environment.

Dividend History & Growth: In Q4 2015, Archrock Partners declared an annualized dividend of $0.5725 per share, yielding 34.28% at a payout ratio of 239%. The dividend growth for the period 2007-2015 is 105.9% or 13.2% annually and the company is expected to continue delivering strong dividends in the coming quarters.

Future Outlook: Going forward, Archrock Partners is expected to be highly focused on cost efficiency policies and on working closely with its customers to achieve strong operating results. Through 2018, analyst consensus estimates the following metrics for Archrock Partners:

Analyst Consensus Estimates for Archrock Partners 2016 2017 2018
Sales ($ m) 690 651 650
Operating Income (EBITDA, $ m) 313 323 359
Net Income ($ m) 47.2 47.8 70.8
Earnings Per Share ($) 0.75 0.98 0.95
Dividend Per Share ($) 2.25 2.23 2.34
Dividend Yield 32.9% 32.5% 34.2%

Medley Capital (NYSE: MCC) is a New York-headquartered non-diversified closed-end management investment company that aims to generate income and capital appreciation for its clients. Medley Capital invests in portfolio companies mainly located in North America and lends directly to privately held middle market companies through direct transactions aiming to help these companies expand their operations, refinance or make acquisitions.

Q1 2016 Results: Medley Capital delivered mixed results in the first quarter of 2016 with lower operating expenses, but also significantly higher losses. On the upside, the company has initiated a share repurchase program, which has delivered $2.5 million to shareholders as a result of repurchasing 143,000 shares at a weight average price of $7.68 per share in the fourth quarter of 2015. Furthermore, the company’s dividend growth for the period 2011-2015 is 87.5% or 21.9% annually. More specifically, compared to Q1 2015 results, Medley’s Q1 2016 results are as follows:

  • Revenues reached $34.43 million, down 13.6% YoY from $39.86 million
  • Gross profit margin went down to 52.8% from 56.7%
  • Operating expenses were down 3.6% YoY to $18.76 million from $19.46 million
  • Operating income declined 23.1%YoY to $15.67 million from $20.39 million
  • Net losses of $39.20 million, down 114% YoY from -$18.32 million
  • Annualized dividend per share $1.20, yielding 21.78% at a payout ratio of 632%

Future Outlook: Despite the fluctuating financial environment, Medley Capital continues to see opportunities in the market, that could bring a beneficial outcome to the company’s shareholders. Furthermore, the company is committed to the share repurchase program in order to boost shareholder value through stronger dividends. Through 2018, analysts estimate an average EPS of $1.8, up 521% from the current EPS of $0.19 and an average earnings growth rate of 5% annually through 2020.

Name Price ($) 52 wk low 52 wk high 52 wk low % 52 wk high % Market Cap ($ b) P/E D/E Beta Payout Ratio
Archrock Partners LP 7.00 5.36 27.93 30.60% -74.94% 398.91 6.99 1.94 1.41 239%
Medley Capital 5.78 5.26 9.70 9.89% -40.41% 318.14 29.62 1.04 1.09 632%
OCI Partners LP 6.65 5.78 19.28 15.05% -65.51% 573.32 8.15 1.63 0.36 202%

OCI Partners LP (NYSE: OCIP) is a Texas-based company that engages in the production and sale of ammonia and methanol across the United States. The company’s network consists of industrial users and commercial traders who use methanol and ammonia for further processing and distribution.

Q3 2015 Results: In the third quarter of 2015, OCI Partners has delivered strong results. Revenues were up 14.6% YoY to $103.68 million from $90.47 million, generating a gross profit margin of 49.7% from 37.8% in the same quarter last year. Operating expenses increased 8% YoY to $72.85 million from $67.46 million in Q3 2014. On the upside, operating income increased 34% YoY to $30.83 million from $23.01 million and net income reached $23.14 million, up 24.4% YoY from $18.60 million in Q3 2014.

Dividend History & Growth: OCI Partners declares an annualized dividend of $1.64, yielding 24.89% at a payout ratio of 202%. The company’s dividend growth since 2014 is 57.7%.

Future Outlook: The low natural gas pricing environment and the ample supply of methanol in the market both have helped OCI Partners to offset declines in its realized ammonia and methanol prices and to set the grounds for future growth. Moreover, the new supply of methanol coming from new methanol production facilities in Venezuela, Egypt, and Trinidad, have supported the company’s pricing strategy both for this and for the coming quarters. Analysts estimate an average EPS of $0.98 per share through 2018, up 20.4% from the current EPS of $0.81.


Stock name Dividend Yield
Medley Capital 10.23
Archrock Partners Lp 8.19
Oci Partners Lp 3.50

Articles featuring Medley Capital (MCC):

Prospect Capital's Detailed Dividend And NAV Sustainability Analysis - Part 1 (Includes Remaining Fiscal Year 2019 Monthly Dividend Projection)

Author's Note: This two-part article is a very detailed analysis of Prospect Capital Corp.'s (PSEC) dividend and net asset value ("NAV") sustainability. I have continued to cover this "in-depth" topic due to the number of readers who have specifically requested such an analysis be performed on PSEC at periodic intervals. There was an even greater number of requests for this specific analysis this quarter due to PSEC's recent earnings report. For readers who just... Read more

Approaching Oversold Conditions, Driving 9% Yield With Upcoming Specials

CGBD Special Dividend Coming in December 2018 TCG BDC Inc. (CGBD) continues to have excellent dividend coverage for many reasons including increased overall portfolio yield and continued ramp of its joint venture Middle Market Credit Fund, LLC (“Credit Fund”). There will likely be another special dividend paid in Q4 as the company pays out excess net investment income ("NII") in the form of supplemental/special dividends as shown in the following chart and was discussed on... Read more

Main Street Capital's NAV, Dividend, And Valuation Compared To 14 BDC Peers (Post Q2 2018 Earnings) - Part 2

Author’s Note: PART 1 of this article analyzed Main Street Capital Corp.’s (MAIN) recent quarterly results and compared several of the company’s metrics to twelve other business development company (“BDC”) peers. PART 1 helps lead to a better understanding of the topics and analysis that will be discussed in PART 2. The link to PART 1’s analysis is provided below: Comparing Main Street Capital's NAV, Dividend, And Valuation To 12 BDC Peers (Post Q2... Read more

Prospect Capital's NAV, Valuation, And Dividend Compared To 14 BDC Peers (Post Q2 2018 Earnings)

Author's Note: I am writing this "supplemental" article due to multiple requests that such an analysis be specifically performed on Prospect Capital Corp. (PSEC) in light of recent quarterly results. The format of this article will be similar to a Main Street Capital Corp.'s (MAIN) article I provided which compared that company's results to twelve business development company ("BDC") peers. Within that article, data regarding PSEC's calendar second quarter of... Read more

14.5% Yielding ETN: Time To Buy Or Take Profits?

The UBS ETRACS Business Development Company ETN (NYSEARCA: BDCS) and UBS ETRACS 2X Leveraged Business Development Company ETN (NYSEARCA: BDCL) are exchange traded notes that continue to underperform the average BDC for a few reasons but mostly related to index allocations and "tracking fees." Source: UBS ETRACS BDCL Previous Reductions to Distributions As predicted in "BDC Index Fund Continues To Underperform The Average": "I am expecting BDCS (and... Read more