Investors hunting for income ought to look to small-cap stocks for a few high-quality dividend payers, according to Bank of America. At a time when the S & P 500 and the Nasdaq Composite are hitting fresh records and carrying year-to-date gains of roughly 11%, the Russell 2000 pales in comparison. It is up a mere 2.5% in 2024. But don’t be thrown off by the small-cap index’s underperformance. There are names within it that offer quality dividend yields, according to Jill Carey Hall, equity strategist at Bank of America, in a Monday research report. “For the first time in more than 16 years, a greater proportion of Russell 2000 stocks offer a dividend yield above the 10yr yield (10%) than the S & P 500 stocks (7%),” she said, noting that 41% of the Russell 2000 stocks offer a dividend these days. Further, once the Federal Reserve begins cutting rates, yields paid on cash will fall, and that will make these dividend payers even more attractive for income. Bank of America screened the Russell 2000 for small-cap dividend payers that it rates buy and that meet the following criteria: High quality: This means they are profitable companies and are in the bottom three quintiles by five-year earnings variability. Dividends are expected to be stable or to rise based on the bank’s dividend rating. Their valuation makes them cheap: The stocks are in the lowest three quintiles based on forward price to earnings. Here are the names that made the grade. Salty snacks company Utz Brands is on the list. Bank of America upgraded the stock to buy from neutral in March. “We have increased confidence in UTZ’s roadmap to achieving its long-term sales algorithm of 4-5% exiting 4Q24 and into 2025, which we believe could drive upside to both earnings and the multiple,” wrote analyst Peter Galbo. He noted that the company’s move to expand its geographic distribution in the West, Midwest, Southwest and some parts of the Southeast position Utz to gain market share. The company is based out of Hanover, Pennsylvania. Utz shares are up nearly 12% in 2024, and the stock pays a dividend yield of 1.3%. Fast-food chain Jack in the Box also made Bank of America’s list. Though shares are down 34% in 2024, several Wall Street firms are highlighting an opportunity. “We recommend investors take advantage of JACK’s recent sell-off despite an expected surge in comps soon,” wrote Loop Capital analyst Alton Stump in April. He noted that a combination of slowing same-store sales and California’s fast-food minimum wage legislation have been the culprits behind the stock’s underperformance. “However, in our opinion these perceived headwinds are misguided,” Stump said. He rates the stock a buy. The stock pays a dividend of about 3.2%. Finally, Bank of America added Essential Properties Realty Trust to its list of buy-rated dividend payers. The real estate investment trust specializes in single-tenant properties, and its portfolio includes car washes, early childhood education centers and quick-service restaurants. In March, Citi upgraded EPRT to buy from neutral, citing improved confidence in the company’s acquisitions pipeline and leverage that is below targeted metrics, giving the company balance sheet flexibility. “Given low leverage and significant liquidity we view forecasts as achievable, and note a growth rate of close to 6% into 2024, ahead of most net lease REITs under our coverage,” wrote a team of Citi analysts led by Nick Joseph. The stock has a dividend yield of 4.2%, and shares are up 7.5% in 2024.
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