Bank of America says income-seeking investors should look to small-cap stocks for access to some high-quality dividend payers. While the S&P 500 and Nasdaq hit new records and are up about 11% year-to-date, the Russell 2000 pales in comparison. By 2024, the index is up just 2.5%. Jill Carey Hall, equity strategist at Bank of America, said in a research note on Monday that there are some companies that can offer quality dividend yields. “For the first time in more than 16 years, a higher proportion of Russell 2000 stocks have a dividend yield above the 10-year yield (10%) than S&P 500 stocks (7%),” she said, noting 41 % of Russell 2000 stocks currently offer dividends. Additionally, once the Fed starts cutting interest rates, the yield on cash payments will fall, making the income more attractive for these dividend payers. Bank of America screened the Russell 2000 Index for small-cap dividend-paying companies with a “Buy” rating that met the following criteria: High Quality: This means they are profitable companies and have five-year earnings volatility, In the bottom fifth. Dividends are expected to remain stable or rise, depending on the bank’s dividend rating. Their valuations make them cheap: The stocks are in the bottom three quintiles based on forward price-to-earnings ratios. Below are the names that achieved results. Salty snack company Utz Brands is on the list. Bank of America upgraded the stock to “buy” from “neutral” in March. Analyst Peter Galbo wrote: “We are more confident in UTZ’s roadmap to achieve a long-term sales algorithm of 4-5% in Q4 2024 to 2025, which we believe will likely drive earnings and P/E multiples up. He noted that the company’s move to expand its geographic presence in parts of the West, Midwest, Southwest and Southeast has gained market share for Utz, which is headquartered in Hanover, Pennsylvania. Utz shares rose nearly 12% in 2024. %, with a dividend yield of 1.3%. Fast-food chain Jack in the Box has also entered Bank of America’s list. Although the stock price will fall 34% in 2024, multiple Wall Street firms still highlight this as an opportunity. Writing in April: “While shares are expected to surge soon, we recommend investors take advantage of JACK’s recent sell-off. He pointed to a combination of slowing same-store sales and California’s fast-food minimum wage legislation as culprits in the stock’s underperformance. “However, we believe these perceived headwinds are misleading,” Stoop said. He rates the stock a buy. The stock pays a dividend of approximately 3.2%. Finally, Bank of America added Essential Properties Realty Trust to its list of dividend payers with a Buy rating. The real estate investment trust focuses on single-tenant properties and its portfolio includes car washes, early childhood education centers and fast food restaurants. In March, Citi upgraded EPRT to buy from neutral, citing improved confidence in the company’s acquisition pipeline and leverage below target, giving the company balance sheet flexibility. “Given low leverage and ample liquidity, we believe the forecast is achievable and note growth of nearly 6% through 2024, ahead of our Most Net Lease REITs in Coverage The stock has a 4.2% dividend yield and is set to gain 7.5% in 2024.
