This article looks at the 10 best dividend penny stocks to buy now.
Navigating the Best Dividend Penny Stocks to Buy
Penny stocks, typically defined as shares trading below $5, present a unique opportunity to investors who wish to buy stocks at “ground floor” prices. Investors usually buy such stocks in hopes of them soaring off. However, even though penny stocks may be low-priced, they do come with a lot of risk. Since such stocks don’t necessarily have to disclose the same type of information as other stocks on established exchanges, are susceptible to “pump and dump” schemes, may have low liquidity, and are often thinly traded, investing in them isn’t for the faint of the heart. For example, in 2018, one stock promoter was convicted for inflating share values by approximately $100 million through such schemes. Nevertheless, investors may often find themselves looking for such cheapest stocks that pay the highest dividends. This strategy is particularly appealing to income-focused investors, especially those who don’t have a lot of capital to invest but are looking for a consistent flow of income.
This is because even with a small portfolio allocation, penny stocks can have massive impacts on total portfolio returns. When some of the hottest penny stocks surge, they often deliver multi-bagger returns in a matter of weeks. That said, the outlook for 2024 remains rather mixed. While potential rate cuts may support asset markets, persistent growth concerns and geopolitical tensions serve as headwinds. Economic growth is expected to decelerate significantly, with forecasts indicating a slowdown to around 0.7% real GDP growth. This slowdown could dampen consumer spending, which is a significant driver for many companies, such as those in the penny stock sector.
Moreover, while penny stocks are notorious for being inherently risky and suitable for short-term gains, not all of them necessarily are. In fact, some penny stocks can be hidden gems to invest in, offering exponential gains to their investors. The trick lies in careful fundamental analysis and assessing why a particular penny stock is trading at its current price. Other factors to look at include industry potential, a sound management team, and transparency. Penny stocks are not only attractive to retail investors, but institutional investors and hedge funds have also started taking interest in them over the years. For instance, ARK Investment Management, Renaissance Technologies, and Citadel Advisors are some prominent funds investing in penny stocks that show promise in areas such as biotech, technology, and other industries, taking calculated risks to capitalize on long-term gains.
As of September, there are an estimated 1,800 stocks listed on major American stock exchanges that are trading at $5 per share, or less. Even though many of these stocks come with their fair share of problems, such as a poor balance sheet, there are yet many others that are worthy of discussion. It pays to know that penny stocks, particularly those penny stocks that give dividends, are capable of providing unique investment opportunities. While investors should proceed with caution when approaching these stocks, doing so with a calculated approach may often prove to be successful.
A trader working diligently at her desk, evaluating stocks of multiple industries.
Methodology
Even though penny stocks aren’t the most preferred choice of risk-averse investors during market downturns, there are still many good penny stocks that give high dividends. To compile our list of best dividend penny stocks to buy now, we screened for stocks that have a share price of $5 or below, with 5% or above dividend yields. Next, we scanned Insider Monkey’s proprietary database of hedge funds and picked 10 penny stocks with the highest number of hedge fund investors.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
On that note, here are the best dividend penny stocks to buy now:
10. ARC Document Solutions, Inc. (NYSE:ARC)
Number of Hedge Funds: 9 (2024Q2)
Share Price as of the Close of September 25: $3.38
ARC Document Solutions, Inc. (NYSE:ARC) is a publicly traded digital printing and document services provider in the United States. With over 140 locations worldwide, the company offers both onsite services such as managed print and facilities management services as well as digital services such as digital shipping and managed file transfer, archive and information management, and much more. These services are aimed at helping businesses streamline their document processes both physically and digitally.
ARC Document Solutions, Inc. (NYSE:ARC) is one of the best penny stocks on our list because of its consistent dividend payments and strong capital structure. In the second quarter of 2024, the company reported a solid 4% growth in its sales. This growth is primarily driven by the demand for its digital color printing services, offsetting the decline in traditional black-and-white printing. Its scanning and archiving services also performed well, contributing to the growth. While the company acknowledges the intense competition in the digital color market, it also assures that it stands out with its “extensive footprint, comprehensive service offerings, and a seasoned management team”.
In terms of cash flows from operations, the second quarter saw lower cash flows year-over-year, but this is attributed to the timings of sales collections. ARC Document Solutions, Inc. (NYSE:ARC) is confident that these cash flows will improve in the second half of the year, just like they did last year. The general trend is that the company generates over 60% of its cash flow in the second half, and this trend is expected to continue this year as well. The company closed the quarter with close to $50 million in cash and cash equivalents, providing significant liquidity. Their strong capital structure remains intact, and the company is committed to returning shareholder value by reaffirming its plan to issue a $0.05 quarterly dividend.
At the end of the second quarter, 9 hedge fund holders had stakes in ARC Document Solutions, Inc. (NYSE:ARC), up from 8 in the previous quarter. These stakes have a collective value of more than $8.7 million.
9. Entravision Communications Corporation (NYSE:EVC)
Number of Hedge Funds: 12 (2024Q2)
Share Price as of the Close of September 25: $2.03
Entravision Communications Corporation (NYSE:EVC) is a California-based American media company primarily operating as an advertising solutions, media, and technology company. It mainly caters to the Spanish-speaking Hispanic community in the United States and is a trusted source of news and information for them.
Earlier this year, this penny stock lost one of its major customers, Meta Platforms, after Meta decided to shut down its authorized sales partner (ASP) program. This led Entravision to divest a large portion of its digital advertising assets. Despite this setback, the company still saw a 12% year-over-year increase in revenue in Q2,2024. The rise in revenue can be attributed to election year ad spending in their Television and Audio segments. However, the rise was partially offset by lower overall advertising revenue, spectrum rights usage, and retransmission consent revenue. In particular, the company’s Digital segment witnessed a growth of 36% compared to the same quarter of the prior year. This was largely due to Smadex, their programmatic ad purchasing platform, and Adwake, their mobile growth solutions business. Revenue in their Television segment and Audio segment dipped by 5% and 4% respectively as compared to the same quarter of the prior year. However, Entravision Communications Corporation (NYSE:EVC) expects a significant increase in political advertising activity throughout the quarter.
Free cash flow during the second quarter was $15.7 million, compared to $2.3 million in the second quarter of 2023. The company paid a total of $4.5 million in dividends to stockholders in the second quarter, or $0.05 per share. As of September 20, 2024, this translates to a dividend yield of 10.26%. The Board of Directors has approved a $0.05 dividend per share for the third quarter payable on September 30 to stockholders of record as of September 16, 2024.
According to Insider Monkey’s database, 12 hedge funds had stakes in Entravision Communications Corporation (NYSE:EVC) at the end of the second quarter, representing a collective worth of $79.75 million. The leading stakeholder in the company is Renaissance Technologies.
8. Orion Office REIT Inc. (NYSE:ONL)
Number of Hedge Funds: 14 (2024Q2)
Share Price as of the Close of September 25: $4.1
Orion Office REIT Inc. (NYSE:ONL) is a fully integrated real estate investment trust engaged in the ownership, acquisition, and management of a diversified portfolio of high-quality office buildings located in strong suburban markets across the U.S.
During the second quarter of 2024, Orion Office REIT Inc. (NYSE:ONL) generated a revenue of $40.1 million, a decline from $52 million in the same quarter of 2023. Over the years, the company has been dealing with declining profitability levels and lower-than-average occupancy rates. With more and more employees preferring to work from home, owning and investing in office spaces hasn’t proved to be an ideal situation for the company.
On a positive note, ONL has completed 633,000 square feet of lease transactions in 2024, more than doubling the total for all of the previous year. Moreover, its portfolio is strategically spread across various tenants, industries, and geographic locations, thereby reducing the risk of dependency on a single tenant or sector. 72.3% of its tenants are investment grade, which implies that the company benefits from reliable income as such tenants are less likely to default on lease payments. Moreover, none of its tenants represent more than 15% of the portfolio by ABR (Annualized Base Rent). Orion’s diverse portfolio and high-quality tenants are expected to ensure stable, recurring cash flow to support business growth. Tenants such as the Government Services Administration (rated AA+) and Merrill Lynch (rated A-) provide a reliable foundation for cash flow projections, as their high credit ratings indicate strong financial stability and lower default risk.
Orion Office REIT Inc. (NYSE:ONL) has repaid $9 million in debt this quarter, bringing its total debt reduction to $158 million since the spin-off from Realty Income. Next Century Growth Investors, LLC also highlighted the growth prospects for the company in its Q2 2024 investor letter:
“Orion Group Holdings, Inc. (NYSE:ORN) is a leading provider of marine construction services and vertical concrete construction. In marine, they are a leader in enabling the buildout, expansion, and maintenance of ports in the United States. ORN’s size, scale, and ability to maintain and grow their equipment fleet relative to a highly fragmented end market allows them to drive growth and profits. There are numerous government and military spending initiatives within the marine segment so the growth outlook should remain strong.”
As of June 30, 2024, the Company had $267.9 million in liquid assets, which includes $24.9 million in cash and cash equivalents. The dividend declared for the second quarter of 2024 is $0.10 per share, with a dividend yield of 9.63% as of September 24, 2024.
According to Insider Monkey’s database, for the second quarter of 2024, 14 hedge funds had stakes in Orion Office REIT Inc. (NYSE:ONL), representing a total worth of $194.55 million. Renaissance Technologies increased its holdings in Orion by 36% compared to the previous quarter and is the largest stakeholder in the company as per our database.