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Small Cap Trio: Growth and Yield

08/02/2016 8:00 am EST


Tim Plaehn

Investment Research Analyst, Investors Alley

Although I focus on mid-cap stocks, I do run across small caps that fit my investment criteria. Here are three very small stocks that could put some zip in an income-focused portfolio, explains Tim Plaehn, editor of The Dividend Hunter.

Horizon Technology Finance Corp. (HRZN) is a $150 million market cap business development company (BDC). It provides secured loans to venture capital-backed and private equity backed growth-stage companies.

The targeted industries for investment are technology, life science, healthcare information services, and clean tech. HRZN receives equity warrants from its client companies that can pay off when the client companies go public.

The risk is that you have a small cap lender making loans to much smaller potential high-growth companies. HRZN has paid a steady monthly dividend and currently yields 10.7%.

Jernigan Capital (JCAP) is a $90 million REIT that provides financing for the development of self-storage facilities. Over the last few years, self-storage has been one of the hottest commercial and equity REIT sectors.

Jernigan Capital came to market with a March 2015 IPO. The company is not yet earning its big dividend.

This is a stock that has the potential to make investors a lot of money, however, it also has the potential to completely fail within the next few years. JCAP currently yields 10%.

Sotherly Hotels (SOHO) is a $90 million market value hotel/lodging REIT. SOHO has very high dividend coverage, with cash flow that is three times the current dividend rate.

There is room to significantly increase the quarterly payout.  However, the REIT has a debt/EBITDA ratio that is at least double the average for lodging REITs.

Revenue in the hotel business can be very cyclical, so the high amount of debt could result in much less dividend coverage in an economic downturn. The stock yields 6.2%.

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By Tim Plaehn, Editor of The Dividend Hunter

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