In the current market landscape where the S & P 500 and the Nasdaq Composite are thriving, small-cap stocks have been overlooked. However, investors seeking income opportunities may find hidden gems within the Russell 2000 index. According to Jill Carey Hall, an equity strategist at Bank of America, a significant number of small-cap stocks now offer dividend yields that surpass those of the larger indices. This shift in dividend yields presents an opportunity for income-seeking investors who are willing to explore small-cap stocks.
Quality Dividend Payers
Bank of America has identified several small-cap stocks within the Russell 2000 that offer high-quality dividend yields. These stocks are not only profitable companies but also have stable or rising dividend expectations based on the bank’s rating criteria. Additionally, these stocks are valued attractively, falling within the lowest three quintiles based on forward price-to-earnings ratios.
Featured Stocks
Among the small-cap stocks highlighted by Bank of America is Utz Brands, a salty snacks company based in Hanover, Pennsylvania. Despite facing a challenging market, Utz Brands has shown resilience and potential for growth, leading Bank of America to upgrade its rating to buy. With an anticipated increase in market share and a dividend yield of 1.3%, Utz Brands presents an intriguing opportunity for investors.
Another notable stock on the list is Jack in the Box, a fast–food chain that has experienced a decline in share value in 2024. However, analysts remain optimistic about its future prospects, attributing the recent setbacks to temporary factors such as slowing same-store sales and regulatory changes. With a dividend yield of approximately 3.2%, Jack in the Box offers income potential for investors.
Lastly, Essential Properties Realty Trust, a real estate investment trust specializing in single-tenant properties, has also been identified as a buy-rated dividend payer by Bank of America. With a diverse portfolio that includes car washes, early childhood education centers, and quick-service restaurants, Essential Properties Realty Trust offers stability and a dividend yield of 4.2%, making it an attractive option for income-focused investors.
Small-cap stocks present a unique opportunity for investors seeking high-quality dividend yields. Despite the underperformance of the Russell 2000 index compared to its larger counterparts, there are hidden gems within the small-cap space that offer income potential. By conducting thorough research and identifying stocks that meet specific criteria, investors can capitalize on the dividend-paying opportunities presented by small-cap stocks in the current market environment.