With outlook for yield from bonds continuing to remain low for many years, investors are looking for investments that can provide income in uncertain times. While many investors look to large firms, I think that some select penny stocks might be able to offer an attractive dividend yield that is overlooked by larger institutions.
Penny stocks aren’t being left out in the cold. There are many penny stocks that offer a good dividend yield with capital appreciation. What I think we’re going to see over the next few years is that investors that put their money in treasuries are going to lose a lot of capital, as the bond market is tilting towards higher rates, which means the price of bonds will be going down. This, when combined with higher cash levels at companies, including penny stocks, will drive companies to increase their dividend yield over the next decade.
This combination of higher dividend yield and an economy that recovers will drive up the price of penny stocks over the next decade. After all, I would rather put my money in growing penny stocks paying a higher dividend yield than a 10-year U.S. Treasury bond that yields less than two percent with limited upside potential and a huge risk of capital losses.
One of the more interesting trades is in Newcastle Investment Corp. (NYSE/NCT). This is one of the few penny stocks offering a large dividend yield, at an over 10% forward rate and a relatively low forward price-to-earnings ratio of just over five.
Newcastle is involved in the real estate business, which is still a risky area and, hence, one of the reasons that many investors haven’t jumped into this name yet or other penny stocks that offer a high dividend yield. There are no free lunches in investing. If you want very little risk, you get very little reward. Of course, with a greater potential reward comes a higher risk level. If the economy and real estate market rebound over the next decade, Newcastle could prove to be an interesting investment, but an investor would have to be comfortable with the risks and only allocate a small portion to any one investment.
Even with the large move up in price, the company’s dividend yield appears attractive. This is one example of penny stocks that are able to offer both capital appreciation and a dividend yield. Considering the move up in price, some consolidation is in order. At that point, I would also want to see how the next quarter’s numbers are reported to ensure the continuance of the high dividend yield.
This is just one example of penny stocks that offer a high dividend yield and might be a good first step for an investor to think about for further research. There are many penny stocks that would be solid investments over the next decade. Receiving a relatively high dividend yield when investing in penny stocks is a good way to add to the total return of an investor’s portfolio, provided the investor has performed enough due diligence to understand all of the risks involved.
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