Saw an article on cheap dividend stocks (https://pennystocks.com/featured/2022/02/08/5-best-penny-sto…) and I have to say, there are several with consistent payouts and a few with double digit yields. Anyone have experience investing in the cheaper dividend stocks? successes, failures, what to look deeper into, etc.?
Used to own PitneyBowes (PBI) back in the days when the company was a decent mid-Cap dividend idea (perhaps 20-or-so years ago). Obviously much has changed in that time-frame.
Oxford Square Capital (OXSQ) appears to be a Business Development Company (BDC). The lower priced BDCs tend to be more of a wild bet. Don’t know anything about OXSQ, but recall investing in a cheap BDC that owned CLO assets. The BDC was a precursor to Saratoga Investment Corp (SAR) and turned out quite well after some of its deeply undervalued assets started trading at better prices. It did take more than a year for the investment to play out, and the initial dividend was not the investment motivation.
Anyone have experience investing in the cheaper dividend stocks?
I invest in dividend-paying stocks but do not focus on penny stocks which are typically really risky. And keep in mind that penny stocks or stocks under $5.00 are not necessarily cheap or inexpensive. Price to earnings ratio, or price to funds from operations ratio, or price to tangible book or estimated net asset value are better indications of how expensive or inexpensive a stock (company) is in relation to its stock price.
Look for dividend-paying stocks that may be undervalued and pay a growing dividend without any recent dividend cuts or omissions.
Many penny stocks are highly speculative. Often with little or no earnings.
Dividend paying stocks have to have earnings. That’s a plus. But do watch for earnings.
Stocks priced under $10/share are often avoided by the pros. Those stocks tend to be subject to manipulation. Be very careful.
Some have already commented that the stock price is no buying indicator. So there’s that. Any headline saying something like “10 stocks under $10 about to pop” or one of the thousand variations on that theme I don’t bother to click on.
The thing is there’s no substitute for valuation and investing criteria. It’s fine to have your own, but it’s important to be consistent or it quickly degrades to guessing, which leads to a form of gambling. Gambling works fine when the market goes up… not so much when it doesn’t.
Personally I mainly invest in dividend paying stocks. The wheat gets separated from the chaff by a couple of criteria, of which I’ll list a few.
- Consistent dividend paying. (At least 5 years straight)
- Consistent dividend increases. (At least 25% over the last 5 years, preferable gradual.)
- PE well under 20 (don’t overpay)
- Have earnings cover dividend by a factor 1.5 or 2. You don’t want them to cut dividend when business is slow.
And then I run a DCF and only buy when there’s significant margin of safety, generally in the 30%-50% discount range.
You’ll see that most (99%?) penny stocks will not pass one or more of these criteria.
Lastly, I try not to sell within 3 years. I have made a few exceptions where I found I made a mistake in my valuation after I already bought. After 3 years I have sold a couple that lagged my overal portfolio performance considerably. But I’m only 4 years in this strategy, so there haven’t been many occasions of stock that lagged that I owned 3 years. I have trimmed a few positions that had run up a lot and the valuation didn’t look attractive anymore compared to other stocks. This has turned out to be a mistake in hindsight each and every time.
Do with this as you please
This may have been mentioned already, so please forgive if I’m repeating what has already been said
‘Cheap’ stocks have absolutely nothing to do with the stock’s current share price.Cheapness or expensiveness has to do with the price per share the market is willing to pay for $1 of future earnings.
Example: a stock the market has priced at $300 per share with a projected earnings of $30 per share is half the price of a stock priced at $10 per share with a projected earning per share of $.50.