Are These Small Caps With High Dividends A Safe Bet?

Published Tue, 01 Mar 2016 17:00 CET by TopYields.nl


Small caps with high dividend yields can be a win-win situation for value investors, because they receive a decent dividend without compromising growth. In fact, small caps with high dividends offer the potential for long-term gains and income in the form of a dividend.
Furthermore, small caps have historically outperformed large caps, because small caps have a greater potential for growth. Also, dividend stocks that have been outperformers over the long term, also tend to provide a cushion against price volatility and economic uncertainty. Investing in small caps with high dividend yields can be a safe choice in a fluctuating market environment.
This article discusses three small cap stocks that trade in different industries, with a market capitalization of less than $1 billion and an average dividend yield of 27%. Although all three stocks have underperformed the market YoY, they have strong fundamentals and they consistently deliver strong dividends.

Archrock Partners LP, Medley Capital and OCI Partners LP YoY Stock Performance Graph
Archrock Partners LP (Nasdaq: APLP) is a Houston, Texas-based Master Limited Partnership (MLP) that engages in the designing, sourcing, owning, installing, operating, servicing, repairing and maintaining equipment to provide natural gas contracts to customers across the United States. Through its subsidiaries, Archrock Partners monitors compression services requirements over time to provide the necessary modifications to the level of services and related equipment. The company serves a network consisting of a range of companies operating in the oil and natural gas industry, including natural gas producers, processors, gatherers, transporters, and storage providers.

FY 2015 Results: Compared to 2014, Archrock Partners has delivered strong results in 2015. Revenues reached $656.8 million, up 13.1% YoY from $518.0 million, whereas operating income was $315.0 million, up 26.5% YoY from $249.0 million and net income reached $83.0 million, up 71.1% YoY from $48.5 million in the same period last year. Moreover, in 2015, excluded items include a non-cash goodwill deficiency of $127.8 million, a non-cash long-lived asset deficiencies of $39.0 million, and acquisition costs of $0.3 million. Also, in the fourth quarter, Archrock Partners continued to demonstrate an established stability of production-related services in spite of the challenging market environment.

Dividend History & Growth: In Q4 2015, Archrock Partners declared an annualized dividend of $0.5725 per share, yielding 34.28% at a payout ratio of 239%. The dividend growth for the period 2007-2015 is 105.9% or 13.2% annually and the company is expected to continue delivering strong dividends in the coming quarters.

Future Outlook: Going forward, Archrock Partners is expected to be highly focused on cost efficiency policies and on working closely with its customers to achieve strong operating results. Through 2018, analyst consensus estimates the following metrics for Archrock Partners:

Analyst Consensus Estimates for Archrock Partners 2016 2017 2018
Sales ($ m) 690 651 650
Operating Income (EBITDA, $ m) 313 323 359
Net Income ($ m) 47.2 47.8 70.8
Earnings Per Share ($) 0.75 0.98 0.95
Dividend Per Share ($) 2.25 2.23 2.34
Dividend Yield 32.9% 32.5% 34.2%

Medley Capital (NYSE: MCC) is a New York-headquartered non-diversified closed-end management investment company that aims to generate income and capital appreciation for its clients. Medley Capital invests in portfolio companies mainly located in North America and lends directly to privately held middle market companies through direct transactions aiming to help these companies expand their operations, refinance or make acquisitions.

Q1 2016 Results: Medley Capital delivered mixed results in the first quarter of 2016 with lower operating expenses, but also significantly higher losses. On the upside, the company has initiated a share repurchase program, which has delivered $2.5 million to shareholders as a result of repurchasing 143,000 shares at a weight average price of $7.68 per share in the fourth quarter of 2015. Furthermore, the company’s dividend growth for the period 2011-2015 is 87.5% or 21.9% annually. More specifically, compared to Q1 2015 results, Medley’s Q1 2016 results are as follows:

  • Revenues reached $34.43 million, down 13.6% YoY from $39.86 million
  • Gross profit margin went down to 52.8% from 56.7%
  • Operating expenses were down 3.6% YoY to $18.76 million from $19.46 million
  • Operating income declined 23.1%YoY to $15.67 million from $20.39 million
  • Net losses of $39.20 million, down 114% YoY from -$18.32 million
  • Annualized dividend per share $1.20, yielding 21.78% at a payout ratio of 632%

Future Outlook: Despite the fluctuating financial environment, Medley Capital continues to see opportunities in the market, that could bring a beneficial outcome to the company’s shareholders. Furthermore, the company is committed to the share repurchase program in order to boost shareholder value through stronger dividends. Through 2018, analysts estimate an average EPS of $1.8, up 521% from the current EPS of $0.19 and an average earnings growth rate of 5% annually through 2020.

Name Price ($) 52 wk low 52 wk high 52 wk low % 52 wk high % Market Cap ($ b) P/E D/E Beta Payout Ratio
Archrock Partners LP 7.00 5.36 27.93 30.60% -74.94% 398.91 6.99 1.94 1.41 239%
Medley Capital 5.78 5.26 9.70 9.89% -40.41% 318.14 29.62 1.04 1.09 632%
OCI Partners LP 6.65 5.78 19.28 15.05% -65.51% 573.32 8.15 1.63 0.36 202%

OCI Partners LP (NYSE: OCIP) is a Texas-based company that engages in the production and sale of ammonia and methanol across the United States. The company’s network consists of industrial users and commercial traders who use methanol and ammonia for further processing and distribution.

Q3 2015 Results: In the third quarter of 2015, OCI Partners has delivered strong results. Revenues were up 14.6% YoY to $103.68 million from $90.47 million, generating a gross profit margin of 49.7% from 37.8% in the same quarter last year. Operating expenses increased 8% YoY to $72.85 million from $67.46 million in Q3 2014. On the upside, operating income increased 34% YoY to $30.83 million from $23.01 million and net income reached $23.14 million, up 24.4% YoY from $18.60 million in Q3 2014.

Dividend History & Growth: OCI Partners declares an annualized dividend of $1.64, yielding 24.89% at a payout ratio of 202%. The company’s dividend growth since 2014 is 57.7%.

Future Outlook: The low natural gas pricing environment and the ample supply of methanol in the market both have helped OCI Partners to offset declines in its realized ammonia and methanol prices and to set the grounds for future growth. Moreover, the new supply of methanol coming from new methanol production facilities in Venezuela, Egypt, and Trinidad, have supported the company’s pricing strategy both for this and for the coming quarters. Analysts estimate an average EPS of $0.98 per share through 2018, up 20.4% from the current EPS of $0.81.


Stock name Dividend Yield
Medley Capital 10.11
Archrock Partners Lp 8.38
Oci Partners Lp 0.00

Articles featuring Medley Capital (MCC):

Medley Capital: This 11.5% Yield BDC Is Worth Considering

If you are looking for a high yield business development company ("BDC") trading at an attractive price then Medley Capital Corporation (NYSE: MCC) is worth considering. Even though this company may need to cut its dividend modestly over the next six months (because its net investment income and dividend coverage ratio are both trending lower), we expect the share price is resilient, especially considering it already trades at a discounted price versus its book value. Given its... Read more

Assessing Dividend Coverage For The High-Yield BDC Sector: Part 2

This article is a follow-up to my previous "Dividend Coverage" and "Pricing Articles" discussing methods to assess dividend coverage, which is necessary for valuing business development companies ("BDCs"). Focusing on simple coverage of the dividend with the previous quarter net investment income ("NII") is not enough. Also, just because a BDC is trading below net asset value ("NAV") does not imply a cushion for investors and is basically... Read more

Rising Interest Rates: Good Or Bad For The High-Yield BDC Sector?

As discussed in previous reports and public articles, an increase of interest rates by up to 100 basis points (1%) is not meaningful for most Business Development Companies ("BDCs") due to interest rate floors on investments. However, LIBOR continues to rise, and the three-month LIBOR rate is now over 1.1%, and many BDCs are starting to experience increased income from portfolio investments. As discussed in my previous "Interest Rate" articles, there are many pros and cons... Read more

Increased Volatility For The High-Yield BDC Sector

Q4 2016 BDC Results: Most business development companies ("BDCs") have reported calendar Q4 2016 results and there were a handful with disappointing performance. Timing is important when investing in BDCs for many reasons including general sector volatility, opaque reporting standards and being largely retail-owned, especially for lower quality BDCs. The opaque and inconsistent reporting for BDCs often results in retail investors making poor decisions. Focusing on simple... Read more

Yield-Based Pricing For The High-Yield BDC Sector

This article is a follow-up to my previous "BDC Pricing Articles" discussing methods to assess relative risk and dividend coverage, which are necessary for valuing business development companies ("BDCs"). Most retail investors do not have access to research that properly measures risk and dividend coverage for BDCs and this series is my attempt to help BDC investors price investments in a sector that is notoriously opaque. BDC stock prices can be volatile, providing... Read more