We recently compiled a list of the 12 Best Dividend Penny Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Berry Corporation (NASDAQ:BRY) stands against the other dividend penny stocks.
For investors who look for potential for quick gains at a low investment price point, penny stocks can be an attractive but risky stock investment option. Stocks that typically trade under $5 fall under this category, but they can go as low as $1 in some cases. While many of these stocks are a red flag for high volatility, dividend penny stocks offer some security to investors as they balance the risk with some stability and income. They provide the added benefit of a regular income. Investors with high-risk tolerance often seek these stocks to enter high-potential markets. For those seeking to grow their portfolios without taking great levels of risk, dividend-paying penny stocks can be an interesting opportunity.
Often when prices spike in the market, the low-priced shares offer the opportunity to make attractive gains as they allow investors to hold a large number of shares for a small amount of capital. However, these shares also belong to companies that are often under-the-radar with the risk of prices sometimes even falling to zero. They are often considered stocks lacking liquidity and are highly speculative due to small market capitalization. Given their speculative nature, it is recommended to conduct thorough research before investing in penny stocks.
Unlike blue-chip companies trading on major stock exchanges, many penny stocks trade over-the-counter (OTC) or through Pink Sheets where listing requirements are more relaxed. With low levels of information available, these stocks are also susceptible to pump-and-dump schemes. Even though dividend penny stocks pay out dividends, they are not entirely free of the inherent risks and may wind up cutting dividends as a first line of defense when the market goes awry. The majority of these companies are either in their early growth stage or are companies facing financial difficulties. Many of these companies fail to perform or go bankrupt, leading to substantial losses for investors.
Investing in dividend penny stocks also requires a thorough understanding of financials and carefully selecting a portfolio. Investors should look out for a history of regular dividends and a reasonable dividend yield.
In a broader market context, penny stocks tend to underperform large-cap in the longer term due to their inherent financial risks and instability. Less than 10% of penny stocks graduate to higher stock data, while some end up getting delisted. However, there are instances of penny stocks performing outstandingly and transitioning into mid-cap and even large-cap stocks. While over 90% of OTC penny stocks underperform over five years, it was noted that small-cap stocks that pay dividends out-perform their non-dividend paying counterparts by over 2-3% annually. This might not seem significant, but these figures provide some context in a highly speculative market with less transparency.
While typically penny stocks are avoided by hedge funds due to their limited stability and scalability, some funds specializing in small-cap or high-risk investments do engage with these stocks. In instances where hedge funds identify undervalued penny stocks with strong growth potential, they may accumulate significant positions and sometimes influence stock price movements.
The number of penny stocks trading on American Stock Exchanges has seen unusual spikes in recent years and has significantly risen by 72% in 2023 alone; this has prompted market regulators to introduce stricter listing rules to protect investors.
Recent analyses have identified several penny stocks demonstrating bullish technical patterns and have shown promising trends, with breakouts above key resistance levels. As hedge fund involvement in a penny stock may indicate that the company has strong growth potential, undervalued assets, or an upcoming catalyst that could drive its stock price higher, investing in the best dividend stocks according to hedge funds can be one way to vette stocks within a highly fluctuating market. Given this, we will take a look at some of the best penny stocks that pay dividends.
Our Methodology
To come up with our list of best dividend penny stocks to buy according to hedge funds, we screened for stocks that have a share price of $5 or below, with 5% or above dividend yields. From this list, we picked 12 dividend penny stocks with the highest number of hedge funds using Insider Monkey’s proprietary database of hedge funds and their holdings, as of Q3 2024. While these stocks pay dividends, their dividend policies may be inconsistent or vary significantly considering their high volatility and risk nature.
Why are we interested in 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 363.5% since May 2014, beating its benchmark by 208 percentage points (see more details here).
Aerial view of Berry Petroleum Corporation’s oil drilling site in the San Joaquin and Ventura basins.
Berry Corporation (NASDAQ:BRY)
Stock Price: $4.27
Number of hedge fund holders: 22
Independent upstream energy company, Berry Corporation (NASDAQ:BRY) engages in the development and production of conventional oil reserves in the western United States, with a significant focus on California. The company operates through two main segments: Exploration and Production (E&P), focusing on onshore oil and gas reserves, and Well Servicing and Abandonment, providing essential services to the energy sector.
Berry Corporation (NASDAQ:BRY) has undertaken significant financial restructuring to enhance its liquidity and extend debt maturities. The company has successfully completed a comprehensive refinancing of its existing indebtedness in 2024, securing a $450 million Term Loan Credit Agreement and a $500 million revolving loan facility. The strategic move bolstered the company’s financial flexibility, providing over $100 million in liquidity at closing.
The energy sector has increasingly been under scrutiny by regulators, fueling market uncertainties. The sector has seen increased fluctuations in commodity pricing, making it difficult for market players to navigate in an uncertain environment. Despite the challenges, Berry Corporation (NASDAQ:BRY) has had a focus on low-geologic-risk, long-lived conventional oil assets, which has allowed it to be resilient. The focus on conventional oil assets in established regions may provide a degree of insulation against market volatility.
From an investment standpoint, Berry Corporation (NASDAQ:BRY) has attracted attention as a strong dividend-paying stock. The company offers a forward dividend of $0.58 per share as of February 2025. Its strategic emphasis on maintaining strong liquidity and generating free cash flow shows the potential to capitalize on potential market upswings. Investors considering exposure to the oil and gas sector may find Berry Corporation a compelling option. As a value stock, it offers both – access to the energy market and stability through shareholder-friendly policies. While the stock has faced some headwinds, dipping approximately 20% over the past year, recent positive movements and a strong dividend yield suggest potential for future growth and income generation.
Overall BRY ranks 2nd on our list of the best dividend penny stocks to buy according to hedge funds. While we acknowledge the potential of BRY as an investment, our conviction lies in the belief that some stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a stock that is more promising than BRY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
