Investors often seek opportunities that combine growth potential with attractive income streams. Small-cap stocks, though generally perceived as higher risk, can offer substantial returns along with appealing dividend yields.
In this article, we focus on three small-cap stocks - Vector Group Ltd. (VGR), Nordic American Tankers Ltd. (NAT), and DHT Holdings (DHT) - that not only carry consensus “Buy” ratings from analysts, but also boast dividend yields exceeding 7%. These stocks present a compelling mix of growth prospects and steady income, making them potential candidates for those looking to diversify their portfolios while securing high yields.
We will delve into the financial health, performance metrics, and future prospects of each company, providing a comprehensive overview of why these stocks are currently favored by market analysts.
1. Vector Group Ltd.
Founded in 1873, Florida-based Vector Group Ltd. (VGR), with a market cap of $1.67 billion, operates as a holding company, manufacturing and selling cigarettes through its subsidiaries while also focusing on real estate, serving customers in the United States.
Shares of Vector Group have fallen 5.9% on a year-to-date basis, but have regained some ground from their early May lows.
On May 16, Vector Group declared a dividend of $0.20 per share, in line with the previous dividend, payable to its shareholders on June 14. Its annualized dividend of $0.80 per share results in a dividend yield of 7.54%, which is significantly higher than the sector median of 2.74%.
Notably, the company boasts a track record of paying dividends for 23 consecutive years, surpassing the sector median of 14 years. Furthermore, it has a 3-year dividend CAGR of 15.65%, significantly exceeding the sector median of 5.45%.
The company reported its Q1 earnings results on May 1. In the first quarter of 2024, the company’s consolidated revenues dropped 2.9% year-over-year to $324.6 million, mainly due to a 10.5% decline in unit sales volume, and changes in the sales mix from increased Montego volume and decreased volume in other traditionally discounted brands, which were partially offset by price increases. As a result, its top line missed the consensus estimates by $8.7 million.
Although the company experienced a decline in revenue during the quarter, there was positive growth in margins, reflected in the expansion of the adjusted EBITDA margin by 210 basis points to 25.5% in the first quarter. Notably, Vector’s Q1 adjusted EBITDA rose 6.0% year-over-year to $82.8 million. Additionally, the bottom line improved from $0.22 per share a year ago to $0.24 during the quarter, although it missed consensus estimates by $0.01.
It’s noteworthy that Montego’s national retail market share increased to 4% in the first quarter, up from 3.4% in the previous year, despite strategic price hikes, indicating the brand’s resilience. Also, Montego’s distribution broadened in the quarter, extending to over 97,000 stores compared to 82,500 stores a year earlier, which is anticipated to drive sales growth in the upcoming quarters.
Management did not offer specific guidance for the current quarter or fiscal year. However, during the Q1 earnings conference call, Nicholas Anson, President and COO of Liggett Group and Liggett Vector Brands, stated, “Looking to the year ahead, we expect our market share to remain relatively stable, while gradually increasing our margins.” He also highlighted that the deep discount segment continues to demonstrate strength and outperform the overall U.S. cigarette market.
Analysts tracking Vector Group anticipate the company’s earnings to decline by 5.69% year-over-year to $1.16 per share in fiscal 2024, followed by an 8.62% year-over-year improvement to $1.26 per share in fiscal 2025. Moreover, Wall Street anticipates VGR’s revenue to stay relatively stable year-over-year at $1.43 billion in fiscal 2024, with a projected increase of 3.70% year-over-year to $1.48 billion in fiscal 2025.
In terms of valuation, priced at 9.15 times forward earnings, the stock trades at a substantial discount compared to the sector median of 17.40x and its own five-year average of 13.06x. Moreover, the company’s forward EV/EBITDA ratio is 6.91x, below both the sector median of 10.62x and its own five-year average of 8.47x.
VGR stock has a unanimous “Strong Buy” rating from the two analysts covering it. The mean target price for VGR stock is $15.50, which is 46% above Friday’s closing price.
2. Nordic American Tankers Ltd.
Valued at $843.5 million, Bermuda-based Nordic American Tankers Limited (NAT) is a tanker company that acquires and charters double-hull tankers, operating a fleet of 24 Suezmax crude oil tankers.
Shares of Nordic American Tankers Limited have lost 3.8% on a year-to-date basis.
On May 30, Alexander Hansson, Non-Executive Vice Chairman of Nordic American Tankers, bought 350,000 shares in NAT at $4.0029 per share, totaling $1.4 million, thereby increasing his stake to 3 million shares.
On May 29, Nordic American Tankers declared a dividend of $0.12 per share, its 107th consecutive quarterly dividend, payable to its shareholders on July 18. The company’s annualized dividend of $0.48 translates to an 11.88% forward yield, surpassing the sector median of 3.93%. Notably, it boasts an impressive 5-year dividend CAGR of 41.88%.
Nordic American Tankers recently reported results for the first quarter of 2024. In Q1, the company’s revenue declined 30.5% year-over-year to $60.57 million, falling short of Wall Street’s expectations by $5.62 million. The average Time Charter Equivalent (TCE) for the company’s spot vessels in the first quarter of 2024 was $34,320 per day per ship, significantly lower than the preliminary Q1 average TCE of $40,690 and notably below that of its peers.
NAT’s average TCE rate is derived from a mix of spot market and time charter employments, with 80% of the company’s fleet currently operating in the spot market. Considering the company’s disappointing charter rate performance and the elevated second-hand vessel values, management ought to contemplate divesting the oldest vessels in the fleet.
Nordic American Tankers’ net profit dropped to $15.1 million, or $0.07 per share, in the first quarter of 2024, down from $46.9 million, or $0.22 per share, in the same quarter the previous year. Wall Street analysts had anticipated Q1 EPS to be $0.11.
On the positive side, it is important to note that the company boasts one of the lowest debt levels among publicly traded tanker firms. As of March 31, its net debt amounted to $228 million, averaging $11.4 million per vessel, considering its fleet of 20 ships. Furthermore, the company generated $37.6 million in cash from operational activities in the first quarter.
Analysts tracking Nordic American Tankers anticipate the company’s earnings to remain unchanged year-over-year at $0.47 per share in fiscal 2024, followed by a 17% increase year-over-year to $0.55 per share in fiscal 2025. Furthermore, analysts project NAT’s revenue to increase by 4.59% year-over-year to $274.2 million in fiscal 2024, followed by a projected 12.34% year-over-year rise to $308.1 million in fiscal 2025.
In terms of valuation, the stock is currently trading at 8.78 times forward earnings, a significantly lower figure when compared to the sector median of 10.99x and its own five-year average of 15.46x. Additionally, the company's forward EV/EBITDA ratio stands at 6.04x, aligning closely with the sector median of 5.80x.
Overall, analysts have deemed Nordic American Tankers stock a “Strong Buy,” with a mean target price of $5.03, which indicates an upside potential of about 24.5% from Friday’s closing price. Out of the four analysts offering recommendations for the stock, three analysts recommend a “Strong Buy,” and one gives a “Hold” rating.
3. DHT Holdings
Based in Hamilton, Bermuda, DHT Holdings (DHT) operates as an independent crude oil tanker company, offering transportation services to oil companies worldwide, utilizing a fleet of crude oil tankers across the VLCC, Aframax, and Suezmax segments. It also offers technical management services. The company’s market cap currently stands at $1.9 billion.
Shares of DHT Holdings have climbed 18% on a year-to-date basis.
On March 21, Jefferies analyst Omar Nokta upgraded DHT Holdings to “Buy” from “Hold,” with a price target of $14, up from $11. According to the analyst’s research note, tankers are entering the third year of robust earnings, with the oil market balance increasingly favoring them. The company maintains its view of “continued compelling value” in possessing tanker stocks, emphasizing their trading at merely 0.8 times net asset value and at a significant 22.5% free cash flow yield.
On May 31, the company paid its shareholders a quarterly dividend of $0.29 per share, aligning with its capital allocation strategy of disbursing 100% of net income, and representing the 57th consecutive quarterly cash dividend. DHT Holdings’ annualized dividend of $1.16 equates to a forward yield of 10.02%, well above the sector median of 3.93%. Additionally, the company showcases an impressive 5-year CAGR for dividends of 43.93%.
DHT Holdings reported its financial results for the first quarter of fiscal 2024 on May 14. In Q1, its adjusted net revenue increased by 13.2% compared to the previous year, reaching $106.34 million, albeit falling just short of the consensus by $1.58 million. The growth in revenue includes an additional $12.2 million from increased revenue days, stemming from an extra vessel in the fleet and fewer off-hire days, along with $2.2 million from higher time charter rates.
The company attained an average combined time charter equivalent earnings of $50,900 per day in the first quarter, with its VLCCs operating in the spot market averaging $54,000 per day and those on time-charter averaging $39,500 per day. Notably, during the same quarter a year ago, its VLCC time charter rate per day was $35,000, whereas the VLCC spot rate per day stood at $54,000. As of March 31, DHT possessed a fleet of 24 VLCCs, averaging approximately 10 years of age.
The company’s net profit for the quarter totaled $47.1 million, translating to $0.29 per share, compared to $38.0 million, or $0.23 per share, in the first quarter of 2023, in line with expectations. Also, its Q1 net cash from operating activities amounted to $69.9 million, up from $66.5 million a year ago.
Looking ahead, for the second quarter of 2024, management expects the average term time-charter rate to be $36,300 per day.
Analysts tracking the company anticipate a 50.51% year-over-year increase in its profit to $1.49 per share for fiscal 2024, with revenue expected to rise 17.15% year-over-year to $457.36 million.
When assessing the valuation of DHT Holdings, the stock is presently trading at 8.52 times the consensus earnings estimate for 2024, below both the sector median of 10.99x and its own five-year average of 395.13x. Moreover, the company’s forward EV/EBITDA ratio is 6.04x, roughly in line with the sector median of 5.80x, but below its own five-year average of 7.14x.
Analysts have a consensus rating of “Moderate Buy” on DHT Holdings stock. Out of three analysts covering the stock, two have a “Strong Buy,” and the remaining one gives a “Hold” rating. The average analyst price target of $13.67 indicates a potential upside of about 18% from Friday’s closing price.
