Inflation remains stubbornly high, and the increase in interest rates is poised to hurt economic development eventually. In an environment like this, many investors are flocking towards safe high-yielding income stocks.
Investors tend to focus on the largest companies as these are often seen as the safest choices, but that does not necessarily hold true.
Small-cap stocks can offer strong income as well, and can trade with lower valuations, providing for more attractive entry points. In this article, we will discuss three small-cap dividend stocks for income investors.
Universal Corporation (UVV)
Universal Corporation is a tobacco stock. It is the world’s largest leaf tobacco exporter and importer. The company is the wholesale purchaser and processor of tobacco that operates as an intermediary between tobacco farms and the companies that manufacture cigarettes, pipe tobacco, and cigars. Universal also has an ingredients business that is separate from the core leaf segment.
Universal Corporation is active in an industry that has seen its peak. This means that its growth outlook on a company-wide basis is not positive. On the other hand, this means that there is no need for large investments, which results in relatively high free cash generation. The company does not have to worry about competition from new market entrants.
Universal Corporation’s shares trade at a moderate valuation based on the earnings and cash flows that the company generates. Universal Corporation also does not need to invest large amounts of money into its business, which gives Universal Corporation the ability to utilize a substantial amount of its free cash flows for share repurchases. Through a declining share count, Universal Corporation could be able to deliver some earnings-per-share growth during the coming years. Shares currently yield 6.0%.
PetMed Express (PETS)
PetMed Express is a pet pharmacy business that is based in the US. The company provides prescription and non-prescription therapies and medications, health products, vitamins and supplements, food, and other products for dogs, cats, and horses. In addition, it sells hard goods such as beds, crates, and other related products. The company was founded in 1996, generates about $270 million in annual revenue.
On February 6th, 2023, PetMed Express reported third-quarter results for the Fiscal Year 2023. The company fiscal year ends on the last day of March every year. Sales were down 2.9% for the quarter compared to the third quarter of FY2022. For the quarter, the company generated sales of $58.9 million, lower than the total sales of $60.7 million in 3Q2022.
The most significant growth prospects for PedMed Express are through online advertising and continuing to grow to reorder sales as it did for FY2021. Ecommerce demand increased due to COVID-19, so the management team is hopeful that this will continue to expand its reorder sales. We expect a 5% earnings growth for the next five years as eCommerce grows and more people have pets as family members. PETS stock yields 7.4%.
The First of Long Island Corp. (FLIC)
The First of Long Island Corporation is the holding company for The First National Bank of Long Island. This small-sized bank provides a range of financial services to consumers and small to medium-sized businesses. Its offerings include business loans, consumer loans, mortgages, savings accounts, and more.
FLIC operates over 40 branches in two Long Island counties and several NYC burrows, including Queens, Brooklyn, and Manhattan.
FLIC reported its most recent quarterly results on January 26. The company reported revenues of $31 million for the third quarter, which was 0.2% less than the revenues that the company generated during the previous year’s period. FLIC’s revenues missed what analysts had forecasted for the quarter by 5%. The revenue decrease can be explained by the fact that the bank’s net interest margin declined year over year, from 2.86% during the previous year’s quarter to 2.74%. This made FLIC’s net interest income decline slightly.
FLIC’s earnings-per-share totaled $0.44 during the fourth quarter, which was up 16% year over year. This solid earnings-per-share performance was mostly driven margin expansion, although buybacks also resulted in growth tailwinds.
FLIC is a small regional bank that is focused on New Jersey and some burrows of New York. As such, it has benefited from a growing population and strong housing market in the areas it is active in. It has a competitive advantage in terms of being focused on an attractive geographical market. The stock has a 6% dividend yield that appears sufficiently covered.
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Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.
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