You’ve probably seen headlines like this before mentioning stocks to buy and hold forever. But have you ever read the article in full? In many cases, names like Tesla (NASDAQ:TSLA), Amazon (NASDAQ:AMZN), and even Netflix (NASDAQ:NFLX) are on that list.
But there’s a problem if you subscribe to a “buy and hold forever” strategy with stocks like those.
None of them produce a return on your investment unless you sell them. According to popular opinion, they may be some of the most popular stocks to buy. But “buy and hold forever” does you no good if you don’t intend on selling.
So are there ways to make money in the stock market and use the “forever” approach to investing? The short answer is Yes, and dividends are the way to do it. Believe it or not, there are actually several penny stocks (stocks under $5) that offer a dividend to their shareholders. Today we look at 10 of these companies that have consistently declared a dividend even during the pandemic. First, let’s discuss what a dividend is and why it matters to investors.
What Is A Dividend & How Do They Work?
Let’s start with a basic definition: What is a dividend anyway? A dividend is essentially a share of earnings. A company will distribute some form of a dividend to eligible shareholders that hold a specific class of stock. These payments can be in the form of cash, shares, or even physical assets like gold.
Holders of a dividend-paying class of shares are eligible for payment so long as they hold the stock before the “ex-dividend” date. Also known as the “ex-date,” shareholders purchasing stock on or after that day aren’t qualified to receive the dividend. But even if you are buying one day earlier than the ex-date, you’d qualify for the dividend.
What Requirements Need To Be Met To Qualify For Dividends?
Other requirements may also need to get met. Some companies want shareholders to have stock held in certain types of accounts. For example, a popular cryptocurrency company, BTCS Inc. (NASDAQ:BTCS), recently announced a “bividend” to shareholders of record on an ex-date of March 16.
In this case, not only is this dividend issued in the form of Bitcoin (shareholder can also elect for fiat currency), but the company requires “shareholders of record” to qualify as such by holding shares at the company’s Transfer Agent and not at a brokerage firm. Where you might be able to purchase shares of Microsoft (NASDAQ:MSFT) in your TD Ameritrade online account, BTCS requires holders to take additional steps to qualify for a 5-cent bividend.
How Often Are Dividends Paid?
Companies will vary in the frequency and, sometimes, the amount of their dividends. Some may issue monthly dividends, while others may choose 1-time, bi-annual, or quarterly. There are variations to how often dividends get paid. The decision ultimately rests with a company’s board of directors. If you are looking for dividend investing strategies, make sure to research the history of payments. How long have companies consistently paid out to their shareholders? Has the dividend payout increased, decreased, or remained the same?
What Is Dividend Yield?
You’ll also want to know the dividend yield for dividend-paying stocks. Dividend Yield is the percentage of the current share price that a dividend is paid from annually. The dividend Yield will change when stock prices fluctuate as a result. If you’re looking to calculate dividend yield, here’s a simple equation to use:
Dividend Yield % = (Total dividends paid per share each year / The current share price) x 100
For example, if a company pays a quarterly dividend of $1 per share, the total dividends paid per year is $4 (there are four quarters in 1 calendar year). If the share price of this company’s stock is $100, the dividend yield is 4% ([$4/$100]x100).
When it comes to buying and holding forever, technically speaking, dividend investing is the one way to make money. These companies essentially pay you to hold shares of their stock.
5 Penny Stocks That Pay Dividends
Most people will associate dividend-paying stocks with “blue chip” companies. Apple (NASDAQ:AAPL), Microsoft, Exxon Mobil (NYSE:XOM), etc., have consistent dividend-paying history. When it comes to penny stocks, most investors in the stock market today will associate them with day trading or high-risk investing. Believe it or not, there are several companies trading as penny stocks that offer dividends, and here are 5 to know:
- Orchid Island Capital (NYSE:ORC)
- Pitney Bowes (NYSE:PBI)
- Nomura Holdings Inc. (NYSE:NMR)
- Gold Resource Corporation (NYSE:GORO)
- Oxford Square Capital (NASDAQ:OXSQ)
1. Orchid Island Capital (NYSE:ORC)
One of the more popular types of companies that pay dividends are Real Estate Investment Trusts (REITs). One of the interesting requirements for being a REIT is paying out most earnings as dividends. This is in exchange for being treated as a pass-through business by the Internal Revenue Service. Basically, when the REIT figures out its taxable income, it pays out at least 90% of the income as a dividend.
The critical part to remember is that in most cases (consult your tax professional), REIT dividends are seen as ordinary income vs. capital gains. Where capital gains are usually taxed at lower rates, ordinary income is taxed at whatever your current marginal tax rate is. Are there some exceptions? Yes, but again, consult a tax professional for the case-by-case details.
Orchid Island Capital is a REIT. It focuses on investing in Agency residential mortgage-backed securities (RMBS). The attractive thing about Agency RMBS, according to Orchid, is that these are issued and guaranteed by a federally chartered corporation. The company’s current Agency RMBS portfolio at the end of last September sat at $5.6 billion, and the company has upcoming earnings results to report later this month.
ORC Stock Dividend
Despite cutting its dividend, the yield is still relatively higher than some of the larger companies in the stock market today. ORC has consistently reported a monthly payment of $0.065 per share, which is now changed to $0.055 per share. If all things remained constant at a $0.055 payment per month per share, the ORC dividend yield would sit around 16% based on current prices around $4.
2. Pitney Bowes (NYSE:PBI)
Unlike Orchid, Pitney Bowes is global shipping and mailing company. It provides logistics and financial services to its clients, including Fortune 500 companies. The company also provides technology solutions and recently rolled out a banking platform. Earlier this month, Pitney announced the platform from Fiserv will build the framework for Pitney Bowes’ bank expansion offering solutions for small and midsize businesses.
“A combination of technology and trusted relationships are key to the long-term success of small businesses, and we’re proud to be a partner to Pitney Bowes Bank as they enhance and expand their offerings to deliver an excellent experience and enable their clients to remain competitive in today’s changing business environment.”Todd Horvath, Head of Account Processing Services at Fiserv
PBI Stock Dividend
Over the last year, Pitney Bowes has issued a quarterly dividend of $0.05 per share. The next dividend payment will be made on March 14, 2022, to shareholders of record on February 18, 2022. Based on the current price of PBI stock of roughly $5, the PBI dividend yield sits around 4%.
3. Nomura Holdings Inc. (NYSE:NMR)
Nomura offers financial services for a range of clients. Whether it’s individuals, corporations, governments, or other financial institutions, the company provides various solutions. Besides traditional banking services, the company is also entering the cryptocurrency arena.
Late last year, Nomura reported an investment in crypto assets services provider Crypto Garage. The approach was to develop its SETLLENET blockchain settlement platform for institutional investors. The companies, along with Komainu (a digital asset custody services provider), entered into a memorandum of understanding to look into providing digital asset custody services to Japanese institutional customers.
NMR Stock Dividend
Nomura’s dividend is less consistent than the other names on this list. However, the company has consistently declared a biannual payment for the last few years. Last year, Nomura paid a total of $0.2074 per share. Based on the current share price of roughly $4.80, the NMR dividend yield sits at around 4.3%.
4. Gold Resource Corporation (NYSE:GORO)
Gold Resource is a precious metal mining company. It focuses on developing projects in Mexico and the U.S. with an interest in gold, silver, copper, lead, and zinc. Despite the downtrodden trend in the market with GORO stock, the company continues advancing its programs. Earlier this year, Gold Resource announced new production figures for 2021, including 22,644 ounces of gold and over 1 million ounces of silver. The company also recently acquired Aquila Resources, which is expected to advance development efforts at the Back Forty Project in Michigan.
GORO Stock Dividend
Until Q3 of 2021, Gold Resources offered a cash dividend or one paid in minted gold and silver rounds. But due to lack of participation and increased administration costs, this was discontinued. The company prides itself on rewarding shareholders. There’s a running tally on the corporate website stating, “OVER $118,000,000 RETURNED TO SHAREHOLDERS TO DATE.”
GORO’s dividend payments fluctuate. Last year, it paid dividends in a range of $0.0033 per share and $0.01 per share. In total, $0.0433 was paid per share, putting the GORO dividend yield around 2.7% based on current prices at roughly $1.60.
5. Oxford Square Capital (NASDAQ:OXSQ)
Oxford invests in syndicated bank loans and debt collateralized by loan obligation vehicles. These loans are usually secured and made to corporate borrowers in connection with mergers & acquisitions or recapitalization events.
The company had a strong performance last year. OXSQ stock surged from around $3 to as high as $5.22. Even with the recent sell-off in the stock market, shares remain consistent above $4. Heading into earnings season, investors may have refocused on Oxford’s financial progress. In its last quarterly update, the company reported a jump in net asset value per share to $5.03 compared with $4.91 in the prior quarter. It also recorded a net unrealized appreciation of $5.6 million compared to $2.5 million the previous quarter.
OXSQ Stock Dividend
Last year the company paid monthly dividends of $0.035 per share totaling $0.42 per share annually. Based on the current trading levels of around $4.20, the OXSQ dividend yield is roughly 10%.
Are These The Best Penny Stocks To Buy & Hold Forever?
Like all investments, the final decision is up to you. Are you looking for penny stocks to buy and hold forever or ones to trade for a quick flip? Whichever your strategy, it all begins with putting together a watch list based on different traits that fit your trading style. Today we looked at 5 penny stocks with dividends. The dividend yields range from 2.7% to 16% based on recently reported pay-outs.
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