Penny stock trading can hold incredible potential investment returns yet also presents some of the riskiest and most volatile opportunities in the entire stock market.
Despite this volatility and unpredictability, there are some hidden penny stock gems that offer steady monthly dividend payments, making them a more attractive option for income-seeking investors who also want to enjoy the potential for high returns that aren’t usually associated with dividend-paying companies.
Unlike large-cap firms that typically pay quarterly dividends, some penny stocks have been able to carve out a niche in the market by offering consistent monthly dividends, effectively providing both a solid dividend yield combined with the considerable share price appreciation penny stocks are traditionally known for. These companies may not be as well-known or widely followed as their larger counterparts, but they can still offer a great investment opportunity for the right investor.
In this article, we’ll explore some of the top penny stocks that pay monthly dividends and discuss why they may be worth considering for your investment portfolio. We’ll provide a quick overview of the underlying businesses of these companies, their financials, and their potential for future growth. We’ll also explore some of the risks associated with investing in penny stocks and how investors can mitigate these risks to achieve their investment goals.
What is a Penny Stock?
Before we dive into the top penny stocks that pay monthly dividends, it’s important to understand what a penny stock is and how it differs from other types of stocks.
A penny stock is typically defined as a stock that trades at a relatively low price, usually under $5 per share and is often issued by smaller, less-established companies. These stocks are usually traded on over-the-counter (OTC) exchanges rather than major stock exchanges like the New York Stock Exchange (NYSE) or NASDAQ.
While the term “penny stock” is often used to describe any stock that trades at a low price, there are specific regulatory definitions that govern what qualifies a company as a penny stock. In the United States, the Securities and Exchange Commission (SEC) defines penny stocks as any stock that trades below $5 per share and is not listed on a major stock exchange. (Other countries and regulatory bodies may have definitions that differ slightly from the above.)
One of the key characteristics and differences of penny stocks when compared to larger companies is their high volatility. Because penny stocks are often issued by smaller companies that are less well-known and have lower trading volumes, their prices can fluctuate wildly based on small changes in market conditions, news events, or other factors. This volatility is exactly what makes penny stocks such a high-risk, high-reward investment opportunity.
Another key differentiator of penny stocks is the level of regulation and oversight. Because companies issue penny stocks with fewer resources and lower levels of public scrutiny, there is often less information available to investors about these firms. As a result, penny stocks can be more susceptible to fraud, manipulation, and other unethical practices.
It’s important to note that the volatility and reduced oversight of penny stocks do not make these stocks bad investments. Many legitimate smaller companies issue shares, which can also offer significant growth potential, a great business model, and a steady income stream for investors to enjoy. Those interested in entering the world of penny stock investing should be sure they perform proper research and risk management and are aware of the risks when building their portfolio.
How Big are Penny Stock Dividend Payments?
When it comes to penny stock dividend payments, investors may wonder how big the payouts actually are. After all, penny stocks are typically associated with low prices, so it’s natural to assume that the dividend payments may also be relatively small.
While it’s true that penny stock dividend payments may be lower than those of larger, more established companies, there are still some penny stocks that offer a relatively high regular dividend payment.
More specifically, some penny stocks may offer 5% or higher dividend yields, comparable to the dividend payments paid out by much larger firms. That being said, it’s important to remember that high dividend yields can also be a red flag, as it may indicate that the company is struggling financially and is using dividend payments as a way to attract investors. Or, the company is failing to invest in new growth initiatives and is deciding to use the cash generated from operations to payout investors instead of trying to grow the business.
Additionally, penny stock dividend payments can be less consistent than those of larger companies, considering they’re still trying to solidify their business model. This can lead to interruptions and potentially extended pauses in income investors’ monthly dividend payments.
It’s also important to consider the payout ratio when evaluating penny stock dividend payments. The payout ratio is the percentage of a company’s earnings that are paid out as dividends, and a high payout ratio could indicate that the company is paying out more in dividends than it can sustainably afford.
In short, penny stock dividend payments can vary widely in size and consistency.
While some penny stocks may offer high dividend yields, it’s important for investors to conduct thorough research and analysis to ensure that the company is financially stable and can sustainably afford to pay out its scheduled dividends in the long run. Looking at a company’s payout ratio, among other factors, can be a great starting point for investors looking to invest in penny stocks that also provide dividend income.
Top 7 Penny Stock Companies That Pay Dividends
To help our readers combine the powerful growth that penny stocks provide while also capitalizing on the steady income and cashflow dividends give, here are 7 cheap dividend stocks investors should consider adding to their watchlists.
Broadmark Realty Capital (BRMK)
Broadmark Realty Capital Inc. / Investor Relations
Broadmark Realty Capital is a commercial mortgage Real Estate Investment Trust (REIT) that specializes in short-term construction loans, commonly referred to as “hard money” loans. These loans are considered high-risk, but the lender compensates for this risk by charging a higher rate of interest.
Despite the challenges presented by the pandemic, BRMK stock held steady and rewarded investors with monthly dividends of 7 cents per share during the housing boom and outbreak of covid-19. Today, as the economic challenges continue and the housing boom begins to wane, the REIT has taken measures to conserve cash by reducing its dividend payout slightly, which although is unfortunate for penny stock investors, shows the company is willing to make the hard decisions necessary to remain financially strong and continue to pay a dividend to their investors.
Even with the reduction in their payout, BRMK still offers a high yield of approximately 12%. And with the company currently trading at a significant discount of around 36% to its tangible book value, with a market cap of $616 million, gives investors an attractive entry point in terms of overall valuation.
Nordic American Tankers (NAT)
Technical Analysis of Nordic American Tankers Limited / TradingView
Nordic American Tankers is an international tanker company that purchases and leases double-hull tankers on a global scale. The company currently manages a fleet of more than 23 Suezmax crude oil tankers, which are so named because they are the largest ships that can pass through the Suez Canal.
Nordic is a rare penny stock that is already profitable which also pays dividend investors a handsome yield of approximately 7%. On a trailing twelve month basis the company has grown their revenue by 65%, making this one of the best dividend stocks in terms of payout ratio, as well as top line growth.
Further, Nordic has seen their share price drop by 50% since the beginning of 2023, however, with a cash flow generating business, consistent demand, and a great dividend payment, makes this a great company for those looking to trade penny stocks which also have a great underlying business and steady dividend yield.
Kinross Gold Corporation (KGC)
K Stock Price and Chart / TradingView
Kinross Gold Corporation is a leading gold mining company that specializes in the exploration and extraction of gold mines across different countries, including the U.S., Brazil, Chile, Ghana, and Mauritania.
Despite a 20% decline in its share price in 2022, KGC has shown a remarkable recovery in 2023, bouncing back by over 50% from its July lows.
Despite Kinross recently having to divest their operations in Russia for an almost $200 million divesture loss, the company’s diversified operations in other parts of the world have significantly lessened the blow and allowed the firm to continue with their consistent payout investors have become accustomed to.
More specifically, KGC has been generous with its dividend payouts, offering one of the highest yields in its sector at 2.42% per share. As such, KGC is a very attractive penny stock for investors looking for exposure to the gold mining industry.
The company’s solid dividend payments, global reach, and strong industry reputation make it a compelling investment opportunity for penny stock dividend investors.
Lument Finance Trust (LFT)
Lument Finance Trust Reports Third Quarter Results / PR Newswire
Lument Finance Trust is a commercial mortgage REIT that specializes in middle-market multifamily loans. Concerns about a potential downturn in the real estate market and LFT’s decision to reduce its dividend from 9 cents to 6 cents per quarter in early 2022, has led to the company’s stock price not performing well in 2023.
However, with LFT’s shares trading at around $1.70 per share, investors may find risks and uncertainties already factored into its current price. And even with the dividend cut, LFT still boasts a yield of 11.4%.
Another factor in LFT’s favor is that its loan portfolio is 100% floating, which could be beneficial in a rising interest rate environment. If one believes the real estate market will experience a soft landing, it may be worth considering Lument Finance as a potential investment opportunity at its current price point. The company has a good track record of paying regular dividends and should be able to weather any economic storm the broader market can throw at it.
NGL Energy Partners (NGL)
NGL Energy Partners Announces Earnings Call / Business Wire
NGL Energy Partners is a vertically integrated energy business that operates as both a supplier and distributor within the energy industry.
2023 has been a great year for companies in the energy sector, with the price of oil rocketing higher based on strong demand and the constantly evolving situation with Russia and Ukraine. All this has led to the company’s stock price gaining 45% in the last year and NGL significantly improving its balance sheet with a reduced debt load and higher cash position.
NGL does not currently pay a dividend but has done so in the past. The performance of the company seeing a significant improvement over the last two years, makes this a higher-risk play on a firm that is likely to reinstate its dividend in the comping months or quarters. If NGL begins paying a dividend again, investors can expect their share price to rise even further than it already has.
Sachem Capital (SACH)
Sachem Capital Corp. Announces Dividend of $0.13 Per Share / Yahoo Finance
Sachem Capital is a company that specializes in originating, servicing, and managing a portfolio of residential real estate mortgages. The company has seen its revenue rise 42% on a trailing twelve-month basis and has an incredible operating margin of 70%.
Sachem has a current forward annual dividend yield of 15.66% and a payout ratio of roughly 139%. This, with a PS ratio of only 4.56, makes Sachem a very attractive investment option for those who want to invest in an industry leader with a safe dividend payment, whose business model should continue to see consistent demand for the foreseeable future.
Lloyds Banking Group PLC (LYG)
Lloyds Banking Group Plc (LYG) Stock Price, News & Info | The Motley Fool
In the current economic climate, banks with a strong asset base (and have implemented proper risk management techniques – unlike Silicon Valley Bank) are benefitting greatly from rising interest rates.
Lloyds Banking Group appears to be well-positioned in this regard, as they’re expected to earn a healthy return on its assets while keeping most of the profits for itself instead of passing them on as savings to customers. Today, the bank’s dividend yield of 5.1% is more than twice the average for the sector.
European finance stocks have performed well in recent years, with Lloyds leading the charge. Its share price has outperformed the S&P 500’s average, indicating strong investor confidence. Moreover, industry analysts forecast that the bank’s dividend yield will continue to rise for the next two years, potentially reaching a high of 6%.
Lloyds is undeniably one of the largest financial services organizations in Europe through offering a wide range of services, including mortgage lending, investment banking, and asset management. Despite its larger size, Lloyds is not a household name, but it is highly regarded within the industry for its sound financial management and stable performance. For investors seeking exposure to the banking sector, the company is a solid choice that offers attractive dividend yields mixed with great long-term growth potential.
Best Way to Find Dividend Paying Stocks
If you’re interested in investing in dividend-paying stocks but don’t know where to start, there are several methods to find them.
One way is to use stock screeners and search for companies based on their dividend yield, market capitalization, payout ratio, and sector. Popular screeners include Yahoo Finance, Finviz, and Seeking Alpha.
Another method is to look at dividend aristocrats, companies that have increased their dividend payout for at least 25 consecutive years. These companies are considered reliable and stable, and their stocks are typically less volatile than others. Some well-known dividend aristocrats include Procter & Gamble, Coca-Cola, and Johnson & Johnson. These aristocrats won’t be penny stocks in the traditional sense. However, they can offer investors some stability to their portfolio while still giving respectable dividend payments.
Lastly, you can also follow financial news and analyst reports to identify companies that have announced dividend increases or have a history of paying higher dividends. Many companies announce their dividend payouts quarterly, so keeping track of these announcements can help you identify potential investment opportunities.
Finding the best dividend-paying stocks requires research, analysis, and a good understanding of the market and individual companies. While high dividend yields can be attractive, it’s important to consider other factors, such as a company’s financial health, growth potential, and industry trends, before making any investment decisions.
Potential Risks
Investing in dividend-paying penny stocks can be tempting, as it offers the potential for high yields and significant growth opportunities. However, it’s important to consider the risks involved before jumping into the penny stock world on any over-the-counter or national stock exchange.
One of the biggest risks is the high volatility of penny stocks. As we mentioned, these stocks tend to have low trading volumes, making them susceptible to sudden price swings based on their low float and lower price.
Another risk is the lack of information available. These companies are often smaller and less established, so they may not have the same transparency and reporting requirements as larger ones. This can make it difficult for investors to perform their research and make strategic decisions based on the company’s financial health and growth prospects.
Despite these risks, dividend investing also has several potential benefits, with a focus on penny stocks.
These stocks can offer high dividend yields that may be difficult to find in other investment options or sectors. Additionally, the potential for growth can be significant, as many penny stock firms have significantly more room to grow as they continue to gain market share and onboard new customers.
Final Word
Ultimately, the decision to invest in dividend-paying penny stocks will depend on each investor’s own preferences and risk tolerance. It’s important to do your due diligence and research any company thoroughly before investing. Investors should consider diversification strategies and ensure they practice proper portfolio management tactics to help limit risk.
It’s crucial to emphasize that investors should approach dividend-paying penny stocks with a long-term perspective. Short-term fluctuations and market volatility can be common in this space, but by focusing on the underlying fundamentals of the company and its ability to generate consistent earnings and dividends, investors can potentially reap the benefits over time. Patience and a steadfast commitment to a well-researched investment strategy are key factors in maximizing the potential returns and mitigating the inherent risks of dividend investing in penny stocks.