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 Gerdau S.A. (NYSE:GGB) 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).
A steel worker in high-visibility gear standing in front of a vast array of steel products.
Gerdau S.A. (NYSE:GGB)
Stock Price: $2.89
Number of hedge fund holders: 14
As one of the largest steelmakers in the world and recognized as the largest producer of long steel in the Americas, Gerdau S.A. (NYSE:GGB) has operations in over 10 countries. The company serves diverse markets in multiple sectors like construction, industrial, and agricultural. It is also recognized for its focus on sustainability and recycling scrap constituting 73% of its steel production. GGB is among the best penny stocks that pay dividends.
The global structural steel industry has seen a significant increase in demand recently, driven by the rise in infrastructure developments. The industry is projected to reach a market size of $143 billion by 2025. This growth positions Gerdau S.A. (NYSE:GGB) favorably to increase its profitability. In Q4, 2024, the company reported a net income of 3 cents per share, with adjusted earnings reaching 6 cents per share. Together with the strong performance and plans for expansion, the company presents a strong outlook for the coming years.
From an investment point of view, Gerdau’s stock offers a compelling investment for dividend-focused investors. A forward annual dividend yield of 4.71%, reflects its commitment to delivering consistent shareholder returns.
Stepping into 2025, Gerdau S.A. (NYSE:GGB) has outlined plans to strengthen its position in key markets and explore new growth opportunities, while continuing to demonstrate operational efficiency. In an evolving global steel scenario, the company’s strategic initiatives and focus on creating a diversified portfolio position it well to capitalize on emerging opportunities. While the industry has been posed with significant challenges by way of fluctuating raw material prices and increased competition, the company has proved to be resilient through a strong financial performance. This proves that it is well prepared to tackle future industrial challenges through technological advancements, a strong market presence, and robust financials.
Considering these factors, Gerdau S.A. (NYSE:GGB) offers an interesting opportunity to investors seeking exposure to dividend-paying stocks in the industrial sector.
Overall GGB ranks 9th on our list of the best dividend penny stocks to buy according to hedge funds. While we acknowledge the potential of GGB 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 GGB 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.
