10 Ultra-High Dividend Small-Cap Stocks You Should Know About, Part 2

The wild swings that the equity markets saw during the third quarter resulted in several stocks taking a huge beating. While that period was painful for many investors, it actually was a bit of a blessing in disguise for fixed income investors. For several years before the third quarter of 2015, the broader market and many individual stocks underwent a gradual rally without any significant corrections. This not only made it hard for fixed income investors to buy their favorite stocks at a reasonable valuation, but also made the annual dividend yield of such stocks less lucrative. However, the third quarter changed all that, with several companies losing more than one-fourth of their market capitalization. Considering that the equity markets have now stabilized and some of the small-cap stocks that took a beating are still trading significantly lower than what they were before the tumult, we at Insider Monkey decided to compile a list of 10 ultra-high dividend stocks that our readers, especially those who value fixed income, must know about. In a previous post we revealed the top five stocks that made it to our list and in this post we are going to reveal and discuss the remaining five.

But before we proceed to the list, let’s first understand why we track hedge fund activity. From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 38-month period beginning from September 2012, returning 102% (read the details here).

Senior Housing Properties Trust (NYSE:SNH)

 – Elite Investors with Long Positions (as of September 30): 14

 – Aggregate Value of Elite Investors’ Holdings (as of September 30): $53.24 million

Like the stocks of most other REITs, Senior Housing Properties Trust (NYSE:SNH)’s stock has also slumped hard this year. However, the magnitude of its decline is far larger (down by 36.77% year-to-date) when compared to its peers, since it started to decline quite early in the year, in February. During the third quarter, when Senior Housing Properties Trust (NYSE:SNH)’s stock lost 5.5%, the ownership of the company among funds tracked by Insider Monkey came down by three and the aggregate value of investors’ holdings in it saw a decline of over $7 million. Since Senior Housing Properties Trust has managed to keep its quarterly dividend payout of $0.39 per share constant even after suffering such hard declines, it now boasts an annual dividend yield of 11.16%. This attractive dividend yield might have prompted quant fund Renaissance Technologies to initiate a stake in Senior Housing Properties Trust by purchasing 621,577 shares of the company during the July-to-September period.

Ship Finance International Limited (NYSE:SFL)

– Elite Investors with Long Positions (as of September 30): 16

 – Aggregate Value of Elite Investors’ Holdings (as of September 30): $28.7 million

Perhaps Ship Finance International Limited (NYSE:SFL) wouldn’t have made it to our list if its stock hadn’t fallen by more than 13% over the past two weeks, after it reported its fiscal year 2015 second quarter results on November 24. The EPS of $0.49 on revenue of $111 million that the company reported for the quarter was lower than the EPS of $0.53 on revenue of $112.74 million that analysts had expected. In spite of suffering such a drastic decline, the stock of Ship Finance International Limited (NYSE:SFL) still trades up by 8.5% year-to-date and the quarterly dividend of $0.45 per share that the company pays translates into an annual dividend yield of 11.75%. Maintaining its 7.1 million shares of Ship Finance International Limited was enough for Kenneth Tropin‘s Graham Capital Management to remain the company’s largest shareholder at the end of September among the firms that we track.

Chimera Investment Corporation (NYSE:CIM)

– Elite Investors with Long Positions (as of September 30): 16

– Aggregate Value of Elite Investors’ Holdings (as of September 30): $291 million

Moving on, shares of Chimera Investment Corporation (NYSE:CIM) suffered a serious beating during the second quarter, but because they have remained range-bound since, their year-to-date losses have been contained at 15.85% currently. The number of hedge funds covered by us that held shares of Chimera Investment Corporation (NYSE:CIM) declined by only one during the third quarter. However, the aggregate value of their Chimera holdings declined by 15% during the same period. On December 11, the company announced that its Board of Directors agreed to keep its quarterly dividend constant at $0.48 per share for the fourth quarter. Based on Chimera Investment Corporation’s current stock price, this quarterly dividend translates into an attractive dividend yield of 14.35%. After decreasing his stake in the company by 77% during the second quarter, billionaire Leon Cooperman‘s Omega Advisors again reduced its stake in Chimera Investment Corporation in the third quarter, by 1% to slightly over 14 million shares.

MFA Financial, Inc. (NYSE:MFA)

– Elite Investors with Long Positions (as of September 30): 17

– Aggregate Value of Elite Investors’ Holdings (as of September 30): $51.5 million

MFA Financial, Inc. (NYSE:MFA) is among the few REITs that, despite being in a downtrend and declining in the third quarter, saw its popularity rise among hedge funds. Not only did the number of hedge funds that were long the REIT climb by three during the July-to-September period, but the aggregate value of their holdings in the stock also rose by $2.78 million. With its shares having declined by 16% year-to-date and it still managing to pay a $0.20 per share quarterly dividend, for an annual dividend yield of 11.94%, it’s not hard to understand why hedge funds find MFA Financial, Inc. (NYSE:MFA) attractive. On December 3, analysts at Credit Suisse reiterated their ‘Neutral’ rating on the stock, but lowered their price target on it to $8.25 from $8.50. Charles Clough‘s Clough Capital Partners was one of the hedge funds that initiated a stake in MFA Financial, Inc. during the third quarter; it held 356,300 shares of the company as of September 30.

PennyMac Mortgage Investment Trust (NYSE:PMT)

– Elite Investors with Long Positions (as of September 30): 17

– Aggregate Value of Elite Investors’ Holdings (as of September 30): $131 million

Finally, the decline that shares of PennyMac Mortgage Investment Trust (NYSE:PMT) have suffered since the start of the year weighed heavily on its popularity among hedge funds during the third quarter. The number of funds that disclosed being long PennyMac declined by six during the quarter, while the aggregate value of their collective PennyMac holdings declined by 32.4%. However, the 17 funds covered that disclosed owning a stake in it still accounted for over 11% of the outstanding shares of the company. The company slashed its latest quarterly dividend by $0.14 to $0.47 per share. However, this reduced dividend still represents an annual dividend yield of over 12%. On December 10, analysts at Barclays initiated coverage on PennyMac Mortgage Investment Trust (NYSE:PMT)’s stock with an ‘Overweight’ rating and $21 price target. Having initiated a stake in the company by purchasing over 2.6 million shares during the third quarter, John Khoury’s Long Pond Capital became its largest shareholder among the funds covered by us as of September 30.

Disclosure: None