The market has discounted these cheap dividend stocks that have bright futures.
I have always preferred value investing to growth investing. The latter often comes with significant risks. Growth may flag suddenly, or momentum investors may decide to exit the stock. Both could crater the stock price.
As a value investor, the market has usually discounted the stock already for reasons that aren’t compelling. That means you have less downside and greater upside available. Peter Lynch’s best investments were always value plays.
The market has handed over four cheap dividend stocks for under $10. Even better, each of these stocks pays a high dividend. So not only do you get big capital gains potential, you also get paid while you wait.
Full Circle Capital (NASDAQ:FULL)
Full Circle Capital (NASDAQ:FULL) is a business development company that invests in asset-backed senior secured loans, mezzanine loans, and equity of small and lower-middle-market companies. They’ll drop between $3 million and $10 million in any given investment.
86% of the company’s portfolio are senior secured loans, and yet the entire portfolio yields a very respectable 11.6%, which results in a 10.5% dividend. It is small by BDC standards, with only $90 million invested in various businesses, and is expanding the type of operations it lends to. The stock stock is almost 20% off its 52-week high, leaving room for capital appreciation as well as the hefty dividend payment.
BDCA Venture, Inc. (NASDAQ:BDCV)
BDCA Venture, Inc. (NASDAQ:BDCV) is another BDC, but its strategy is totally different from Full Circle’s. It invests in later stage, emerging growth, pre-IPO and secondary purchase investments in the micro-cap and small-cap arena – before they have gone public. It looks for mostly US-based investments in the internet, software, and technology, but will spend up to 30% of its capital outside the US. The companies it invests in need to have more than $20 million in revenue and enterprise values between $100 million and $1 billion.
BDCA structures its deals in the form of convertible preferred stock, debt, or warrants that it can exchange for stock at an IPO, which needs to take place within 18 months, and which it thinks will double its investment.
As a relatively new vehicle, it hasn’t started seeing results from IPOs yet. Consequently, its big potential gains are still brewing. Still, it has made money and paid about 45 cents per share in dividends in FY13, or about 6.66% on today’s stock price of $6.
TICC Capital Corp (NASDAQ:TICC)
TICC Capital Corp (NASDAQ:TICC) is the third and final BDC in this category, and also operates with a different strategy. TICC invests in both public and private companies, in all forms of debt, preferred stock, and common stock. It focuses on tech companies across multiple sectors, with companies having annual revenues of under $200 million and enterprise value under $300 million. The firm invests between $5 million and $30 million per transaction, and rather than look to exit on a quick IPO, is content to wait as long as 7 years to get out.
It has had phenomenally successful years recently, with revenues doubling from FY11 to FY13, and paying out generous BDC dividends of 12.2%. The stock price is at $9.78
Star Gas Partners, L.P. (NYSE:SGU)
Star Gas Partners, L.P. (NYSE:SGU) is a residential and commercial heating oil and propane distributor master limited partnership, while also engaging in installation and maintenance of home A/C and heating systems. It’s a niche business operating in a small area of the Northeast, but generates fantastic free cash flow off its consistent business. The business has struggled a bit over the past year and a half, but remains profitable and has $85 million in cash on its balance sheet. It pays about $19 million in dividends annually, or about a 5.7% yield.
Lawrence Meyers does not own shares in any security mentioned.
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