Ultra-High Dividend Small-Cap Stocks to Buy Now: Pier 1 Imports, Abercrombie & Fitch, More

With equity markets near their lifetime highs and the Federal Reserve on the verge of hiking interest rates, it has become extremely difficult in the current environment to find inexpensive stocks that also sport attractive forward yields. Considering that this problem is being faced by a number of fixed-income investors including some of our readers, we at Insider Monkey thought to make the process of stock selection a little easier for them.

In order to do so, we’ve made a list of the most popular ultra-high dividend small-cap stocks among the hedge funds in our database as of June 30, 749 of which filed 13Fs for the June quarter. In this article, we’ll reveal the names of the five stocks that topped the list and will discuss how they have performed so far in 2016.

We believe that imitating hedge funds and other large institutional investors can be helpful in identifying stocks capable of outperforming the broader market. Through extensive research that covered portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see the details here).

Inozemtsev Konstantin/Shutterstock.com

#5 Barnes & Noble, Inc. (NYSE:BKS)

– Hedge Funds With Long Positions (as of June 30): 21

– Value of Hedge Funds’ Holdings (as of June 30): $164 Million

– Annual Dividend / Yield : $0.60/5.50%

First up on our list is Barnes & Noble, Inc. (NYSE:BKS), in which 21 hedge funds that we track were long on June 30, unchanged during the second quarter, though the aggregate value of their holdings in the stock fell by $200 million. Barnes & Noble started paying quarterly dividends beginning in the third quarter of 2015, after it spun-off Barnes & Noble Education. However, the company hasn’t hiked its dividend since then, which has caused its forward yield to fall below the 6% mark courtesy the stock’s 25% appreciation this year. Earlier this month, Barron’s published an article which argued that the fears of Amazon destroying Barnes & Noble, Inc. (NYSE:BKS) are overdone and that the stock is trading at an attractive valuation. However, most analysts don’t share that view, citing the weak comps reported by the company as an indicator that its business is in a downfall.

#4 Mercer International Inc. (NASDAQ:MERC)

– Hedge Funds With Long Positions (as of June 30): 21

– Value of Hedge Funds’ Holdings (as of June 30): $166.23 Million

– Annual Dividend / Yield : $0.56/4.62%

Mercer International Inc. (NASDAQ:MERC) was also held in the portfolios of 21 funds in our database on June 30, three more than held it on March 31. Mercer International Inc. (NASDAQ:MERC) also started paying a quarterly dividend from the third quarter of last year, of $0.115, and like Barnes & Noble, that dividend also hasn’t been raised since then. The pulp manufacturer saw its stock crash between April 2015 and February 2016 and though it has stabilized since, it is trading down by 7.65% in 2016. For its most recent quarter, Mercer International reported a loss of $0.07 per share on revenue of $218.15 million, considerably lower than the consensus estimates of $0.03 in EPS on revenue of $233.01 million. The stock currently sports an average rating of ‘Buy’ and an average price target of $11.71 from the seven leading analysts on the Street who track it.

Don’t miss out on three more ultra-high dividend small-cap stocks that the smart money loves, which are featured on the next page.

#3 Pier 1 Imports Inc (NYSE:PIR)

– Hedge Funds With Long Positions (as of June 30): 22

– Value of Hedge Funds’ Holdings (as of June 30): $36.54 Million

– Annual Dividend / Yield : $0.28/6.56%

Shares of Pier 1 Imports Inc (NYSE:PIR) have continued on their inexorable downward journey this year, which started in mid-2013, losing 16% of their value so far in 2016. As the furniture importer has increased its dividend payments by 40% since 2013 and lost over 83% of its market cap since May 17, 2013, its forward yield has ballooned several-fold over the last three years, to 6.56% from less than 1% in 2013. On September 28, the company reported its second quarter earnings, declaring a loss per share of $0.05 on revenue of $405.85 million, largely in-line with analysts’ expectations. For the same quarter of the previous year, Pier 1 Imports Inc (NYSE:PIR) had reported EPS of $0.04 on revenue of $430 million. Pier 1 jumped in popularity among the hedge funds in our system during the second quarter, with a net total of nine more shareholders long the stock and the aggregate value of their holdings in it jumping by 61.5%.

#2 Scorpio Tankers Inc. (NYSE:STNG)

– Hedge Funds With Long Positions (as of June 30): 23

– Value of Hedge Funds’ Holdings (as of June 30): $113.70 Million

– Annual Dividend / Yield : $0.50/10.50%

Moving on, 23 hedge funds that we track were long Scorpio Tankers Inc. (NYSE:STNG) on June 30, down by three during the second quarter, while the aggregate value of their holdings in it shrank by 16.15%. The rebound in oil and natural gas prices this year hasn’t been of any help to Scorpio Tankers Inc. (NYSE:STNG)’s stock, which has lost almost 40% of its value this year. However, the massive decline has helped push the forward yield of its shares to above 10%. According to analysts who track Scorpio Tankers, the stock could be poised for significant upside in the coming months owing to a turnaround in the product tankers industry and the fact that it currently trades at a price-to-book multiple of only 0.55, half of the average price-to-book ratio of 1.1 that it traded at prior to mid-2015. Last month, analysts at Deutsche Bank reiterated their ‘Buy’ rating and $9 price target on the stock, which represents potential upside of 75%.

#1 Abercrombie & Fitch Co. (NYSE:ANF)

– Hedge Funds With Long Positions (as of June 30): 30

– Value of Hedge Funds’ Holdings (as of June 30): $215.32 Million

– Annual Dividend / Yield : $0.80/5.03%

Abercrombie & Fitch Co. (NYSE:ANF) was the most popular ultra-high dividend small-cap stock among the collection of  successful hedge funds in our database at the end of June. Given that Abercrombie & Fitch Co. (NYSE:ANF) hasn’t hiked its quarterly dividend since early-2013, the greater than 40% decline in the specialty retailer’s stock this year is the primary reason why its annual dividend yield currently hovers over 5%. For its most recent quarter, analysts had expected the company to report a loss of $0.20 per share, but Abercrombie & Fitch missed that estimate by $0.05. On the other hand, its revenue of $783.20 million was slightly higher than analysts’ consensus estimate of $782.64 million. On September 28, analysts at Bank of America initiated coverage on the stock with an ‘Underperform’ rating and $16 price target, predicting no upside from its current price.

Disclosure: None