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Published: October 15, 2009
Most income investors ignore small companies.
Conventional wisdom says that large, mature companies pay
dividends and small companies don't.
That's hardly the case.
Nearly 10,000 small caps trade on U.S. exchanges. Of those, 3.3%
carry a yield of 6% or more. Believe it or not, that's roughly
the same as the S&P 500 Index, where 3.6% of the companies on
the index yield above 6%.
Overlooking small companies is a mistake. While many small firms
retain their profits to reinvest in the business, others
generate enough cash to fund growth and pay shareholder
dividends.
It would be dangerous, of course, to assume that every small
company is fast-growing and has a promising future. A little
more vetting is required.
Let's eliminate companies that are trading for less than $5 a
share. These stocks are often being avoided because of a serious
problem in the company's business. We also want small companies
whose shares are liquid: At least 100,000 shares should change
hands daily.
These parameters bring the number of potential investments down
to a manageable number. Here are two that stand out.
Capital Product Partners (Nasdaq: CPLP)
The circumstance that is playing in Greece-based Capital
Partners' favor could turn into a great opportunity.
Capital Partners owns and leases small and medium-sized oil
tankers. Right now, its fleet numbers 18. Its long-term rental
contracts for these vessels range from three to 10 years.
Nine of the company's contracts
expire in 2010. Where shipping rates
end up when those contracts expire
will shape the company's future
success. Shipping prices currently
are lower than shippers would like,
but pricing can change quickly. For
instance, shipping rates have
already risen more than +10% this
month alone.
Capital Partners is reasonably
valued right now. That's likely
attributable to the unknown future
of international shipping rates. The
company currently has a forward P/E
of 10.5. The market sees some
measure of hope in the future,
though, as the company is selling
for 1.5 times book value.Capital
Partners currently yields 16.7%. Its
2008 earnings came in at $2.00;
trailing 12-month EPS is $1.92,
easily enough to cover the company's
$1.61 annual payout.
If you believe in a recovery and
think it will lead to a rebound in
global shipping, as I do, these
shares are a steal. If you're more
pessimistic about the future, the
next stock I've found might be just
the ticket for you.
Regal Entertainment Group (NYSE:
RGC)
The great thing about theater stocks
is that economic conditions don't
really matter. People go to the
movies even when times are tough
because it's relatively cheap
entertainment.
What does matter to theater
operators, however, is how good the
movies are. While Regal doesn't have
any control over what Hollywood
turns out, great movies people can't
wait to see drive traffic to the box
office.
Regal operates more than 550 U.S
theaters, about 7,000 screens. These
theaters are regarded as among the
best in the industry. About
three-quarters have stadium-style
seats, and each either has or is
being upgraded with Sony 4K
digital-projection systems that have
out-of-this-world picture quality.
The company operates in 90% of the
country's top 50 markets and has an
industry-leading 16% market share.
Some 66 million people went to a
movie at Regal in the second
quarter, +12% more than the same
period of 2008. Those customers also
paid more, spending an average of
$8.17 a ticket, up +7% from the
previous year. This shot revenues up
+17% for the quarter.
Regal earned has earned $0.54 per
share during the past 12 months, a
+15% gain from 2008's results. At
the stock's current prices, that's a
trailing 12-month yield of just
above 6%.
This stock can weather any economic
storm, making it ideal for those who
are worried about a prolonged
downturn. However, a year filled
with lackluster movies can really
hurt this. Luckily, 2010 should be a
banner year with names like Iron
Man, Toy Story and Harry Potter
gracing the marquee. -- Anthony
Haddad
Staff Writer
StreetAuthority |
