In general, microcap stocks don't get much respect. But in a market swoon like we experienced last fall, that can also be an advantage. Very often, these issues are overlooked when the time comes to reinvest in equities. And in some cases, that can mean tremendous fundamentals at a great discount.
The financial sector was, of course, battered mercilessly in the autumn selloff, but not all companies deserved such brutal treatment. Here are four financial microcaps that pay handsomely and are worthy of a spot on every value investor's potential buy list.
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The Fare is Fair
Medallion Financial Corp. (Nasdaq:TAXI) is a specialty finance company whose primary business is providing loans for (of all things) taxicab licenses. The company's shares bottomed in March of this year before rebounding nearly 100% and currently stand at $7. They also pay a healthy dividend yield of 10.80%, with a trailing P/E ratio of only 9.4.
Earlier this year, Medallion's senior management undertook to buy the company's stock in amounts equal to 20% of their annual incentive compensation. Medallion trades with a Price to Book ratio of 0.70 and has a market capitalization of $123 million.
Raising the Flag for Dividends
PennantPark Investment Corp. (Nasdaq:PNNT) is a closed end investment fund that earns its keep by providing loans and taking equity positions in mid-size, private U.S. companies. PennantPark shares have tripled in value since hitting 52 week lows in November of last year, yet they still pay an outsized 13.00% annually and trade with a respectable 10.70 P/E ratio. The company trades with a market cap of $156 million and at just over half its breakup value (P/B is 0.54).
Investments of All Shapes and Sizes
Triangle Capital Corporation (Nasdaq:TCAP) also sports a bomb of a dividend yield. Currently at 14.4%, the company's shares also offer a reasonable trailing earnings multiple of just 12. Price to Book on the company's shares is an attractive 0.84 and the market cap is $91 million. Like PennantPark, Triangle earns returns from its loan and equity portfolios. It has paid regular quarterly dividends since its IPO in 2007, and its latest payout represents a 29% increase over the same quarter last year.
The Wrap
These three microcaps represent a niche investment opportunity in the financial sector. All three prove that well-run lenders can both turn a healthy profit and pay out handsome returns to investors. (To learn more, check out How To Evaluate A Micro-Cap Company.)
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