Dividend stocks come in all sizes, and small cap investments can pay some of the biggest dividends on Wall Street. These dividend investments may not pay $2 or $3 a share in dividends, but when you calculate the yield of these stocks — that is, the percentage of your initial investment you’ll get back via annualized dividends – they are impressive income investments.
Consider that a dividend stock with a 10% yield will pay for itself in 10 years if it maintains those dividends. And if the small cap investment raises its dividend yield, that period could be even quicker!
Of course you don’t want to chase flash-in-the-pan stocks that will slash dividends or erase their big yields. But the 7 small-cap payers here are good examples of strong investments in small companies with big dividends: A.F.P. Provida (NYSE: PVD), Alaska Communications Systems Group (NASDAQ: ALSK), BlackRock Kelso Capital Corp. (NASDAQ: BKCC), Enerplus Corp. (NYSE: ERF), Great Northern Iron Ore Properties (NYSE: GNI), Otelco (NYSE: OTT) and Teekay Tankers (NYSE: TNK).
AFP Providia
- Market Cap: $1.5 billion
- Dividend Yield: 9.3%
- Sector: Financials
Chile’s A.F.P. Provida (NYSE: PVD) is the largest private pension fund management company in Latin America with approximately $35 billion in assets under management. The country’s social security system was privatized in 1981, and workers are now required to pay into private pension funds. The company has more than 3 million customers and controls nearly a third of the pension fund market in Chile. Calculating a yield on AFP Providia is tricky, since dividends are paid twice a year. But based on the $6.55 in total dividends paid out in 2010, the current yield on this stock is about 9.3% at current valuations. While PVD stock has slumped in 2011, the 12 month return on shares is nearly 60%.
Alaska Communications
- Market Cap: $470 million
- Dividend Yield: 8.3%
- Sector: Telecom
Alaska Communications Systems Group (NASDAQ: ALSK) is the largest local telecommunications provider in Alaska, offering local telephone, wireless and Internet service to businesses and homes. As Verizon (NYSE: VZ) and AT&T (NYSE: T) battle for dominance mostly in big cities, rural telecoms like Alaska Communications are left to their own devices in less populated (but profitable) areas. Alaska Communications Group stock has doubled the returns of the Nasdaq index in the last year, with ALSK stock adding 20% in 12 months. Add on the hefty 8.3% dividend and you’ve got yourself a decent small-cap income play.
BlackRock Kelso
- Market Cap: $530 million
- Dividend Yield: 12.8%
- Sector: Financial
BlackRock Kelso Capital Corp. (NASDAQ: BKCC) is a private equity firm that specializes in middle market companies. BlackRock Kelso has a sweet spot of $10 million and $50 million for most of its investments. Based on consistent quarterly dividends of 32 cents a share, BKCC stock has a yield of 12.8% at current valuatons. But it’s crucial to note that shares of BKCC plummeted about -20% in three days after earnings earlier this month. The company’s strengths include a solid financial position with reasonable debt levels, but Wall Street slammed BlackRock Kelso for unimpressive net income, poor margins and struggles to grow EPS. If you think shares are oversold and are willing to use a massive dividend to hedge your bets, BKCC may be for you.
Enerplus
- Market Cap: $5.6 billion
- Dividend Yield: 6.8%
- Sector: Oil & Gas
Enerplus Corp. (NYSE: ERF) is an energy trust that operates crude oil and natural gas assets in the U.S. and Canada. It’s no surprise that Enerplus has been rising along with crude oil prices, with shares up about 33% in the last six months. But if you think the only benefit is exposure to a bullish energy trends, consider the monthly payday of 18 cents a share – an annualized dividend of $2.26 a share. At current valuations that’s almost 7%, and the prospect of bigger profits on higher energy prices means this trust could be giving even more back in the coming months.
Great Northern Iron Ore
- Market Cap: $190 million
- Dividend Yield: 9.9%
- Sector: Metals & Mining
Great Northern Iron Ore Properties (NYSE: GNI) owns and leases over 12,000 acres of mineral lands on the Mesabi Iron Range in northeastern Minnesota. While shares of Great Northern Iron Ore Properties have slumped so far in 2011, the stock has rebounded dramatically from a mid-January sell off – gaining back 34% since those early lows. Based on the $12.50 in dividends paid in the last four quarters, this steel-related stock offers a stunning 9.9% yield. But buyer beware: Shares are $125 a piece and typically trade less than 20,000 shares a day. This is stock can be volatile, but very rewarding if that volatility swings in your favor. The big dividend isn’t a bad incentive, either.
Otelco
- Market Cap: $250 million
- Dividend Yield: 8.9%
- Sector: Telecom
One of InvestorPlace.com’s best stocks for 2011, Otelco (NYSE: OTT) was chosen because of its potential to deliver gains and high dividends for investors. The Oneonta, Alabama, regional telecom Otelco provides phone service, internet access and cable TV to rural areas of the South. OTT stock has slightly outperformed the market year-to-date with 4% returns in 2011, but is slowly building on those returns. In its last quarterly report, Otelco boasted income increases of 22% over the prior year and that bodes well for future growth. What’s more, the robust 8.9% dividend yield makes this pick a solid play for income investors.
Teekay Tankers
- Market Cap: $590 million
- Dividend Yield: 12.7%
- Sector: Marine Shipping
Brutalized by woes in the Middle East and uncertainty about vital canal passageways affecting transit times, Teekay Tankers (NYSE: TNK) has sold off over -20% so far in 2011. Shares are also off about -16% in the last 12 months on broad softness for the shipping industry. But the worldwide demand for crude oil isn’t going away and you can bet that tanker shipping is here to stay. Teekay is still soundly profitable, and projected to stay that way in 2011. Based on current valuations and the last four dividends, TNK stock has a yield of about 12.7% — not a bad payday even if shares stay flat. If you think that tankers are going to come back into favor several months down the road, Teekay may be a great small-cap investment.
Jeff Reeves is editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks or funds named here. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.
