3 Under-$10 Stocks With Sky-High Dividend Returns

Discover the trio’s portfolio growth, operational edge, and potential for valuation expansion

In the stock market, everyone seeks hidden treasures and high-return opportunities. The exertion for under-$10 stocks with dividends often yields progressive results. These three solid contenders, each wielding unique strategies and strengths, defy conventionalism.

On the list, the first one emerges as a raptor in asset management, suggesting portfolio growth with resilience amidst market ups and downs. The company has a penchant for equity co-investments. Its edge in deal sourcing and execution builds a path to enriched returns.

Meanwhile, the second one sailed the seas of profitability, capitalizing on optimal vessel deployment and route optimization. Its relentless pursuit of operational and cost optimization boosts its bottom line and solidifies its valuation expansion.

In the asset management industry, the third one stands tall, holding a portfolio management strategy anchored in stability and growth. With dividend sustainability, the company progresses steadily, reinforced by a defensible funding mix that breeds valuation growth.

Read more to learn more about these under-$10 stocks, each adorned with dividends that sparkle even in the tumultuous currents of the market.

Under-$10 Stocks With Dividends: PennantPark (PNNT)

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PennantPark’s (NYSE:PNNT) portfolio has considerable growth momentum, hitting $1.2 billion, representing a 16% sequential increase. PennantPark had solid investment activity during Q1 fiscal 2024, deploying $231 million across 12 new and 32 existing portfolio companies. Here, the company has the fundamental capability to originate investment leads and sharply allocate capital. This suggests the company’s strength in deal sourcing and execution.

Additionally, PennantPark’s participation in equity co-investments led to the capture of upside potential in portfolio companies, boosting enriched returns on invested capital. The company has a track record of generating decisive returns on equity co-investments. There is an internal rate of return (IRR) of 26% and a multiple on invested capital of 2.1 times. Despite an adverse market state, PennantPark sustained a weighted average yield of 11.9% on its investments in Q1. This indicates the company can derive solid returns on its deployed capital.

Moreover, the credit quality of PennantPark’s portfolio is stable. The portfolio has no new non-accruals reported in Q1. Thus, the portfolio has a weighted average leverage ratio through debt securities of 4.9x, reflecting a conservative approach to leverage management.

Furthermore, PennantPark strategically focuses on lending to growing middle-market companies in specific sectors. Here, the company holds considerable domain expertise, including business services, consumer, government services and defense, healthcare, and software and technology. These sectors have recession resilience and strong free cash flow generation potential, which minimizes credit risk. Hence, this enriches the company’s fundamental capability to capture value.

Finally, PennantPark concentrates on meaningful covenant protections in its loan structures, leading to capital preservation and reducing the possibility of credit deterioration.

Nordic American Tankers (NAT)

On board on a suezmax tanker, NAT operates tankers like this one

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Nordic American Tankers (NYSE:NAT) optimized average time charter equivalent (TCE) and operating cost to solidify its valuation expansion. The company attained an average TCE for its spot vessels during Q4 2023, with a TCE of $41.6K per day per ship. Including vessels on term contracts, the average Nordic American tanker TCE stood at $39.2K per day per ship. These solid TCE levels demonstrate Nordic American Tankers’ fundamental capability to command competitive charter rates and optimize revenue generation from its fleet.

Several factors contribute to Nordic American Tankers’ strong TCE performance. Firstly, the company focuses on operating in the Suezmax tanker segment. This enables the company to derive benefits from premium charter rates. Suezmax tankers have optimal size and capabilities for transporting crude oil and are in high demand among oil producers and traders. This demand now allows Nordic American tankers to secure lucrative charter contracts and maximize TCE.

Additionally, Nordic American tankers execute strategic fleet management moves, including vessel deployment and route optimization, that are vital in maximizing TCE. The company capitalizes on profitable charter leads by leveraging market state and predictive analytics. In short, it ensures efficient fleet utilization and minimizing downtime.

Furthermore, Nordic American Tankers’ focus on operational edge and cost optimization leads to strong TCE performance. The company’s aggressive costing practices, including vessel maintenance, fuel consumption optimization, and crew management, reduce operating expenses and enrich the consolidated bottom line.

Finally, the daily operating costs per ship, approximately $9K, highlight Nordic American Tankers’ operational edge and cost-effectiveness. The company may improve its competitiveness and sustain valuation expansion even in adverse market conditions by maintaining strict control over operating expenses and adopting advanced cost-saving initiatives.

Barings (BBDC)

best investments: a hand using the touchpad on a laptop. a concept image of figures and charts is emerging from the laptop screen.

Source: Shutterstock

Barings (NYSE:BBDC) has solid valuation expansion potential supported by constant growth in net asset value (NAV). For instance, the NAV per share increased from $11.05 in 2022 to $11.28 in 2023, reflecting a year-over-year increase of 2.1%. This constant growth indicates the company’s fundamental capability to manage its assets effectively and derive higher valuations. Despite market uncertainties, the company’s focus on investments in sponsor-backed issuers contributed to its stability against market fluctuations. 

Additionally, the company’s portfolio management strategy is outlined to derive stability from returns. Barings BDC has progressively reduced its exposure to non-Barings-originated assets. These assets now only amount to 11% of the portfolio at fair value, a drop from 24% since the beginning of 2022. This reduction in non-Barings-originated assets minimizes potential losses and protects Barings through credit support agreements. As a result, this is enhancing the overall quality of the portfolio.

Furthermore, the company has sharp risk management that can observe the decline in the number of issuers with non-accrual status. The non-accruals decreased to 4% in 2023 from 7% in 2022. Moreover, most non-accrual assets are from acquired portfolios and are covered by credit support agreements (limiting downside risk).

Moreover, Barings BDC holds a stable dividend policy, constantly increasing or maintaining dividends since the company became the adviser in 2018. The Board declared a Q4 dividend of 26 cents per share, equivalent to a 9.2% yield on NAV. 

Finally, the company’s funding mix remains highly defensible, with a considerable portion of unsecured debt in its capital structure. The company issued a new $300 million senior unsecured note, boosting the flexibility of its capital structure. Barings now has over $1 billion of unsecured debt liabilities. Therefore, this provides high operating flexibility and potential for valuation growth.

On the date of publication, Yiannis Zourmpanos did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Yiannis Zourmpanos is the founder of Yiazou Capital Research, a stock-market research platform designed to elevate the due diligence process through in-depth business analysis.

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