3 Under-the-Radar Stocks That Offer High Yield
Many “hidden gem” high-dividend stocks can be found among small- and mid-cap names, including these three.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
The average dividend yield in the S&P 500 Index remains low at around 1.3%. As a result, many stocks have lower dividend yields than they did several years ago, due to rising share prices.
However, there are still quality dividend stocks with high dividend yields.
Many “hidden gem” high-dividend stocks can be found among small- and mid-cap stocks, with market capitalizations below $8 billion. The appeal of smaller companies is that they may have more growth potential than the industry leaders.
These three dividend stocks have yields above 5%, and fly under the radars of most income investors.
Organon & Co.
Organon OGN is a pharmaceutical company that develops and markets health solutions in a variety of areas. It was spun off from Merck MRK in 2021. Its established brands portfolio consists of nearly 50 products that have lost patent exclusivity and are used for treatment in the areas of cardiovascular, respiratory and dermatology and non-opioid pain management.
Organon’s women’s health portfolio includes fertility and contraception brands, such as Nexplanon/Implanon and Nuva Ring. The company also has a small portfolio of biosimilars which are used in immunology and oncology.
For the 2024 first quarter, revenue increased 5.2% to $1.62 billion, which topped estimates by $60 million. Adjusted earnings-per-share of $1.22 compared favorably to $1.08 in the prior year and was $0.29 better than expected. Excluding the impact of currency exchange, revenue improved 7% for the year. For the quarter, revenue for Established Brands, which contributed 62% of revenue, was flat as gains from recent licensing agreements were offset by weaker volumes elsewhere. Women’s Health, which contributed 26% of sales, continued to see a return to growth, with sales up 11% year-over-year.
Growth was driven by the ongoing higher demand for fertility products. Sales for Biosimilars surged 46% due to strong demand once again for Ontruzant. Organon provided guidance for 2024 as well, with the company expecting revenue of $6.2 billion to $6.5 billion. We project that the company will earn $4.44 per share in 2024, up from $4.22 previously.
Organon does have several factors working in its favor for future growth. The established brands business should provide Organon with strong cash flows as the off-patent products do not require much in the way of the research and development expenses. The women’s healthcare business has long been a pioneer in its field since its founding in 1923.
OGN has a high dividend yield of 5.5%.
Antero Midstream
Antero Midstream Corporation AM is a medium-sized midstream company providing gathering and compression services (65% by EBITDA), processing and fractionation services and pipeline services on a captive basis to Antero Resources AR. AR is the fifth-largest natural gas producer and second-largest NGL producer in the country, operating fields primarily in West Virginia.
Antero Midstream Corporation reported its first quarter 2024 financial and operational results, revealing several notable highlights. Gathering and processing volumes experienced increases of 4% and 6%, respectively, compared to the prior year quarter. The company placed the Grays Peak compressor station into service with an initial capacity of 160 MMcf/d. Net income reached a company record of $104 million, or $0.21 per diluted share, marking a 17% per share increase from the previous year quarter.
Adjusted net income was $117 million, or $0.24 per diluted share, reflecting a 14% per share increase from the prior year quarter as a non-GAAP measure. Adjusted EBITDA also increased by 10% compared to the prior year quarter. Capital expenditures decreased by 11% from the prior year quarter, and leverage declined from 3.3x to 3.1x from year-end 2023 to March 31, 2024, respectively.
The company's management expressed satisfaction with the results, attributing them to Antero's integrated planning and development program in Appalachia, and anticipates further progress toward its leverage target in 2024. Revenues for the first quarter were $279 million, with significant contributions from the Gathering and Processing segment and the Water Handling segment.
Net income, adjusted for certain items, amounted to $117 million, resulting in adjusted net income per share of $0.24, a 14% increase from the prior year quarter.
With a 53% dividend payout ratio expected for 2024, Antero’s dividend appears secure. AM stock currently yields 5.4%.
Kohl’s Corporation
Kohl’s KSS traces its roots back to a single store: Kohl’s Department Store in 1962. Since then, it has grown into a leader in the space — offering women’s, men’s and children’s apparel, housewares, accessories and footwear in more than 1,100 stores in 49 states.
Kohl’s reported first quarter earnings on May 30, 2024. The company posted a loss of 24 cents per share, which was well below the forecasted profit of six cents per share. Revenue was also off more than 5% year-over-year to $3.38 billion, which was marginally ahead of estimates. Comparable sales were down 4.4% year-over-year, and operating income fell by more than half as margins struggled once again.
The company noted comparable sales were negatively impacted by more than 600 basis points compared to the year-ago period from a lack of clearance sales. Management said regular price sales were up, however, and Sephora continues to be a source of strength.
Kohl’s now expects full-year revenue to be down between 2% and 4%, with comparable sales down 1% to 3%. Operating margin is now expected to be between 3.0% and 3.5% of revenue, and earnings-per-share is now expected to be just $1.25 and $1.85.
The decline of the mall-based retailer has been well documented. In response, Kohl’s is expanding on several initiatives to renovate its stores and bring in higher traffic. For example, Kohl’s has rolled out a collaboration with beauty brand Sephora, and Kohl’s is well on its way to having a Sephora shop-in-shop in all of its stores. Kohl’s expects Sephora sales to reach $2 billion by 2025, with comparable sales growth above 25% per year.
Compared to other retailers we believe Kohl’s has a competitive advantage in the way of a well-entrenched store footprint outside of large malls, private-label brands, a large loyalty program and an Amazon return service. This is offset somewhat by the competitive nature of the business, but it still allows Kohl’s to stand out.
We believe the dividend will remain at its current level of $2 per share annually for the foreseeable future. KSS stock currently yields 9%.
At the time of publication, Ciura had no positions in any securities mentioned.