5 Penny Stocks that Pay Dividends [Cash In While You Wait]
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Penny stocks that pay a dividend won't make you wait to start making money!
The only thing better than booking two- and three-x returns on your money with penny stocks, is getting paid while you wait. The problem is most penny stocks don’t pay dividends.
In this video, I’ll show you how to find the best penny stocks for cash flow and reveal five dividend stocks to watch for huge returns!
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Why Most Penny Stocks Don't Pay a Dividend
Nation, you know we love penny stocks here on the channel. From the 320% return on shares of Fastly since November to nearly a 160% return on Eldorado Gold over the past year, no other investing strategy produces those triple-digit returns.
But we also love us some dividend stocks, right? I mean, who doesn’t want to get paid to invest while they wait for that stock price to rocket higher?
And that’s the dilemma, that most penny stocks just don’t pay dividends. These are small companies, plowing everything they earn back into growth. New, fast-moving companies that are singularly focused on growing the share price.
So when Mike asked if I could do a video on penny stocks that pay dividends, I had to take up the challenge!
How to Find Penny Stocks that Pay Dividends
In this video, I’ll show you how to find penny stocks with a dividend yield, how to screen for solid companies with strong upside potential and then narrow down your list. I’ll then reveal five top penny stocks to watch that will pay you to invest.
To find those penny stocks, I’m going to be using Stockcard.io a new research platform I’ve been testing out. I really like how stockcard simplifies professional-level stock analysis, basically taking the guesswork out of fundamental analysis. You can research stocks by investing theme like COVID19 vaccines and electric vehicles or create your own screener to find the best investments.
I’ll walk you through some of my favorite features during the video. Stockcard has a great starter plan that’s totally free. I’m planning on putting some of our stock portfolios on the site, like our dividend challenge portfolio, so look for the link in the video description below and sign up so you get notified when we make changes to the portfolios.
Check out the featured portfolios on Stockcard and get started now!
I want to get started looking at our list of penny stocks, and I’ll show you how we picked these later, but first I want to get your opinion on this. Do you want your penny stocks to pay dividends? I know some investors just want that growth and want management to be plowing everything back into that so maybe they can overlook dividends but then, it is really nice to get that quarterly cashflow from a stock.
So what do you think? Does it matter to you if a penny stock pays a dividend, do you want growth or dividends or both. Just scroll down and let us know in the comments.
My Favorite Dividend-Paying Penny Stocks
Our first penny stock is Ellington Financial, ticker EFC, a $550 million mortgage REIT paying an 8.8% dividend yield.
Ellington is really interesting because it’s not just a mortgage REIT, investing in residential mortgages and passing the cash flow on to investors. The company has an extremely diversified loan portfolio, with about a third in residential mortgages, 28% in commercial property mortgages, but also corporate bonds and 17% of assets in consumer loans.
That means its outlook and your dividends aren’t tied to just one sector like residential mortgages but diversified across all these loan types.
If we look into the Stockcard.io platform, each of these cards represents a group of fundamental factors for analysis and we can click on each to drop us down to the detail.
Scroll down a little and we see earnings and dividend calendar information so you never miss the next earnings report or dividend date.
But let’s look at some of these fundamentals because it’s really going to help you find these penny stocks yourself. If we go to operations, we see it’s made up of three sections; sales growth, profitability and cash availability.
You can click on each of these to see the factors that go into scoring each company; for example, Ellington has strong sales growth of 9% in the last fiscal year and 136% in the last quarter. It’s also got a solid current ratio and quick ratio, two very important cash measures for how well a company can cover its liabilities and cash needs.
Besides that 8.8% dividend yield, I really like that diversified business model here. You just don’t get that with most mortgage REITs which specialize in just one segment of the loan market.
Shares of Ellington Financial are priced at just 0.84-times book value which means you’re getting a 19% discount to the portfolio assets beyond that yield. The stock is actually down 34% from its 52-week high and I like it up to at least $15 a share which would be a 20% return plus the 8% dividend.
Using a Stock Screener to Find Dividend Penny Stocks
We’ve got four more penny stocks to look at but I want to give you an idea of how I found these, what I’m looking for here. In the Stockcard platform, you can click on Discover in the menu and then to Your Filters here on the right.
We’ll create a new screen here, call it Dividend Penny Stocks, and then scroll down to the filter options.
We’re looking for low-price stocks here, companies with a market cap of less than $2 billion but ideally in that less than $1 billion range for the most flexible penny stocks.
I’ll toggle these two to filter for stocks with a strong- and neutral dividend paying status.
And you can always check your results to see how many stocks fit the criteria. Here I still have 574 companies in that penny stock list, so I want to click edit and narrow it down further.
I also want to screen for companies with a positive sales track record and good cash availability.
And we can click through and see we’ve narrowed it to 20 penny stocks to watch here which we’ll dig into deeper to find our top five picks.
So that initial screen includes a market cap filter because we’re looking for smaller companies that can grow into big opportunities. We want companies with a commitment to shareholder return through the dividend. Then we’ve got the two fundamental analysis filters here; positive sales growth and good cash availability.
And within Stockcard, each of these fundamentals is represented by multiple ratios and analysis, for example within that cash availability, it was a measure of the current ratio, quick ratio, debt-to-equity and free cash flow that all went together for one rating on the stock.
It’s just a super simple way to analyze a stock, especially if you don’t have the time or don’t want to find each of these measures yourself on the company’s financial statements.
I want to get back to our penny stock list though with $718 million Magic Software, ticker MGIC, and its 2.5% dividend yield.
Now MGIC might not offer as high a dividend yield as some of our picks but I really like the growth potential in this name. The company is a global player in software development including app development and IT infrastructure design. It helped over 3,000 clients in North America and Europe and has a great revenue outlook.
We see here that the software application industry is expected to grow by 16% annually through 2022 and scrolling down further, the company grew revenue by 14.5% last year and 12.3% in the last quarter.
For that cash availability metric, short-term assets are three-times the short-term liabilities and the company has $79 million in balance sheet cash against just $39 million in debt, so an excellent cash position.
This is a rare penny stock tech company that pays dividends but is still able to manage growth, so one I’ll definitely be watching.
Next here is the U.S. MLP arm of BP, $1.2 billion BP Midstream Partners, ticker BPMP, and its 12% dividend yield.
Now this one is bumping up against that upper limit for what I consider a penny stock but it’s still fairly small as far as MLPs go and gives us some nice diversification in the five penny stock list.
Like other MLPs, BPMP owns oil & gas pipelines and storage facilities which it then charges a fee to move those energy products through. The way these companies are set up, they get a special tax break if they distribute most of their earnings to investors, so what you get is a stock with a great dividend yield.
The company grew revenue by 10% in the last year and last quarter and has a very strong cash position. BPMP has $115 million in cash on the balance sheet and a quick ratio of more than 10-times, so its cash and receivables is more than 10-times the short-term liabilities. That’s the kind of financial survivability we want to see to make sure the company can survive whatever happens in the broader economy.
I really liked the company’s most recent earnings report. Management beat by 12% on earnings expectations and left their 2020 guidance for a midpoint of $185 million in cash available for distribution. And this is over a first half that was historically tragic for most energy companies. BPMP expects distribution growth of 5% this year after a 25% increase last year and a coverage ratio of 1.1-times means this is a solid dividend you can count on.
Stockcard Features and Pricing
We’ve still got two more dividend-paying penny stocks, including my favorite of the group, but I wanted to highlight a few more of the features on Stockcard and show you why I’m using the platform for researching stocks.
Click through that link below and the first thing you’ll see is there are so many ways to find stocks on the platform. In Discover here and the Top Picks for You tab, you’ll find lots of ideas related to your search history. You’ll get ideas on companies related to stocks you follow as well as ones you’ve researched.
Join Stockcard.io FREE and find your next investment!
This featured themes tab is one of my favorites and shows you all the stocks in specific investing themes like electric vehicles, the COVID19 vaccine and work-from-home stocks. I love this type of theme investing strategy because you don’t need to pick the best stock, you just find those universal themes that are winning and ride those all the way up.
You’ll also find the popular stocks on the platform, top gainers and losers for the day as well as the companies reporting earnings during the week.
What I’m really excited about, a feature I’ve been looking for to use on the channel for a long time is, if you click on Stock Picks in the menu, you go to this Portfolio Store where you find these theme portfolios.
These are portfolios created by Stockcard analysts and other experts, and if you follow a portfolio, you’ll get instant notifications anytime the portfolio is updated. So we’ll look at this Next Level Investor portfolio of companies changing our world, stocks with a 92% gain since it was created.
And any portfolio, you can click up here to see who created it. This one was created by the company’s founder, Hoda Mehr, and then scroll through to check out all the portfolio holdings.
What I’d like to do in the future is create a few of these portfolios around the themes we talk about here on the channel so if you follow the portfolios on Stockcard, you’ll get instant notifications anytime I update the portfolio. You’ll see the stocks I’m adding even before new videos come out!
Next on our list is $490 million Horizon Bancorp, ticker HBNC, and its 4.2% dividend yield.
Horizon is a diversified financial company providing retail and commercial banking as well as lending. And while financials have been a tough sector over the last year, HBNC has done relatively well with 20% revenue growth last year and estimates for 14.5% growth this year.
Analysts expect positive earnings this year of $1.30 per share which should easily support the dividend.
Shares are trading for just 0.76-times book value with the stock trading as high as 1.3-times book as recently as December of last year, so potentially a 71% return if it gets back to that multiple.
Financials have been hit hard this year, down 18%, and it’s the second-worst performing sector only behind energy. Interest rates near zero make it hard to make money as a bank but I truly believe, if you find the banks and lenders with the survivability we’re looking for, you can find some of the best long-term investments you’ll ever get. This stock is going to continue to spin off that dividend yield and will rebound fast as the economy recovers.
Next here, $564 million UMH Properties, ticker UMH and its 5.2% dividend yield.
UMH is a real estate investment trust that owns manufactured home sites in the Northeast and Mid-west. The company owns 123 communities with more than 23,000 home sites in eight states and an average site rent of $452 a month.
July rent came in at 95% of gross due which was the same percentage as last year so it doesn’t look like COVID19 is affecting business. In fact, property occupancy increased to nearly 86% in the first half of the year and the company has acquired 100 sites so far this year.
Revenue grew by 13% last year and nearly 8% in the last quarter. The three-year growth and current year both look good here. Earnings are expected positive this year and the company is sitting on a strong cash position creating almost $58 million in free cash flow over the past 12 months.
This is probably the riskiest of the five penny stocks but could also mean the most potential upside. The business model, that manufactured home segment, has the most to lose in a protracted recession but it doesn’t look like it’s getting hit just yet. I think even in a worst-case scenario, that dividend yield is safe and the average analyst estimate of $16.50 per share means a 20% return on top of the yield.
Look for that link to Stockcard.io below and sign up to follow and get notified of changes in our portfolios. Don’t forget to join the Let’s Talk Money community by tapping that subscribe button and clicking the bell notification.
Check out Stockcard.io for more great stock investing features!
Penny stocks are some of the best returns you'll ever make but it could be years before the company really takes off. Looking for penny stocks that pay a dividend means you'll be able to cash in on your investment until the price jumps.
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