Small-cap stocks offer an alternative to Big Tech.
The most popular stocks on Wall Street have long been Big Tech darlings such as Amazon.com (ticker: AMZN) and Apple (AAPL). But when you look at the stock market right now, it’s hard to have as much confidence in these giants as they have started to underperform the rest of Wall Street after a big run in 2020. Instead of chasing the same old giants, many investors have begun to look at small-cap stocks as an alternative. These more modest companies — with a market capitalization between $300 million and $2 billion — obviously come with more risk since they don’t have the same scale or deep pockets. That said, by focusing on small-cap dividend stocks, investors can tap into a reliable stream of income as well as potential upside in share prices. If you’re interested in small-cap dividend stocks in 2021, here are seven of the best options to consider.
Hanmi Financial Corp. (HAFC)
California-based Hanmi Financial Corp. is the holding company for Hanmi Bank, a regional bank, which offers checking accounts, real estate loans, small business services, car and home equity loans, credit cards and all the traditional products you’d expect from your local branch. Its network is admittedly modest, with less than 50 physical locations in the U.S. and a market cap that is a fraction of larger Wall Street outfits. However, HAFC is a well-run organization with a commitment to paying back its shareholders, as evidenced by its dividend increase in February from 8 cents to 10 cents per share and year-to-date gains of more than 80% on the hopes of an economic recovery as the worst of the pandemic is put behind us.
Market cap: $640 million
Current yield: 2.02%
Franklin Street Properties Corp. (FSP)
Franklin Street is a qualified real estate investment trust, or REIT. This means that the company gets favorable tax treatment as long as it delivers 90% of taxable income back to shareholders, meaning a mandate for big dividends as well as capital efficiency for a business with large real estate holdings. Specifically, FSP is focused on central business district office properties in highly dense areas — meaning it can command decent rents and has a reliable portfolio of long-term tenants. Admittedly, shares are not back to where they were before the pandemic, as some fear working from home may become more permanent. But physical offices aren’t going away, and based on the fact that FSP’s dividend remained consistent even during the worst of the economic downturn, the company’s generous payouts likely aren’t going anywhere either.
Market cap: $683 million
Current yield: 5.52%
Midland States Bancorp (MSBI)
Another regional bank, Midland States Bank is a small financial outfit founded way back in 1881 in Illinois that currently operates about 70 banking offices. Shares have more than doubled over the last six months as optimism about life after the pandemic and recent stimulus efforts in Washington, D.C., should help bolster this community bank’s bottom line. What’s really attractive to income-oriented investors is that the company increased its dividend at the start of 2021 — and even during the depths of the health crisis, it maintained quarterly payouts that were higher than those in the prior year. This kind of consistency in dividends should give investors confidence they will keep getting paid regardless of short-term economic swings.
Market cap: $648 million
Current yield: 3.88%
Oasis Midstream Partners (OMP)
Oasis provides crude oil and natural gas services to the energy sector in North America. The “midstream” in its name means it is neither an extractor of fossil fuels or a company that sells or uses oil and gas. Instead, it compresses natural gas into liquids, stores and transports crude oil, and even offers water-related services to companies that engage in hydraulic fracturing, or “fracking.” Shares have been on the rise, thanks to a resurgence in energy prices and increased production, meaning more firms will need OMP to act as the middleman between their exploration operations and end users. This business isn’t as volatile as oil or gas production, as Oasis is not exposed to fluctuations in energy commodity markets, helping to provide reliability to its generous dividend.
Market cap: $626 million
Current yield: 12.12%
Pzena Investment Management (PZN)
Pzena is a publicly owned investment manager, though admittedly a smaller one than giants like BlackRock (BK) or KKR & Co (KKR). The firm manages funds for its clients, investing primarily in public equity markets and offering mutual funds to customers. Pzena is relatively new, as it only went public in 2007, but it has offices across the globe in New York, London and Melbourne, Australia. Thanks in part to a focus on higher-net-worth individuals who weathered the pandemic fairly well along with wise investments that have paid off, PZN stock recently hit its highest levels since 2018 and continues to pay an above-average dividend on top of that.
Market cap: $826 million
Current yield: 2.91%
SunCoke Energy (SXC)
SunCoke is a coal company, which may not exactly sound like a growth business in the age of climate change and sustainability concerns. However, SXC is primarily a business that focuses on coking coal, or the carbon that is necessary to make iron ore into finished steel for use in vehicles, appliances, construction materials and a host of other applications. This is very different than electricity generation via coal, and while there is still risk in this segment of the coal industry, it is not as pronounced a disruption, thanks to a switch to green and alternative energy sources. SXC paid a 6-cent dividend each quarter that spanned the pandemic-related disruptions of 2020 without a hitch, so there’s recent proof this stock has what it takes to keep paying shareholders in 2021, too.
Market cap: $594 million
Current yield: 3.59%
Tanger Factory Outlet Centers (SKT)
Tanger, a shopping center REIT, was hit by a double whammy in 2021. During the pandemic lockdowns, social distancing prompted many shoppers to turn away from brick-and-mortar retailers and destinations around the U.S. lost a lot of tourist business. As a result, SKT briefly paused all dividend payments as sales dried up and the stock’s price cratered. But more recently, with vaccine rollouts driving hopes for a recovery, Tanger has come roaring back from a low of around $4 a share to its current price of around $17. It has also reinstated its dividend — and while that payout is admittedly smaller than pre-pandemic levels, it adds up to a generous yield that’s more than double that of the typical stock in the S&P 500.
Market cap: $1.6 billion
Current yield: 4.28%
Seven small-cap dividend stocks to buy:
— Hanmi Financial Corp. (HAFC)
— Franklin Street Properties Corp. (FSP)
— Midland States Bancorp (MSBI)
— Oasis Midstream Partners (OMP)
— Pzena Investment Management (PZN)
— SunCoke Energy (SXC)
— Tanger Factory Outlet Centers (SKT)
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Update 03/11/20: This story was published on an earlier date and has been updated with new information.