Normally penny stocks don’t pay a dividend to investors as they are small companies with lower revenues. Financially it doesn’t make sense for these companies to pay out a dividend because they need the capital to reinvest and grow their business. However, surprisingly there are some dividend paying penny stocks under $5 on the Nasdaq and NYSE. The companies picked below are risky investments but at least with a dividend yield above 3% it does slightly lower your risk.
*Make sure to perform your own due diligence before investing, don’t invest just because a certain company has a high dividend yield.
|AMC||AMC Entertainment Holdings||NYSE||3.00%|
Table last updated July 26th 2020
How to Find Penny Stocks Paying a Dividend
The best way to find suitable stocks is using a stock screener such as Finviz. Simply go to Finviz.com and click on the screener tab which is at the top left of the page. Then you be able apply filters to screen through thousands of stocks across all the major markets. They have a free plan that is more than enough for our needs, for advanced filtering you’ll need to sign up to their paid plan. The four main filters to use – Market Cap, Dividend Yield, Average Volume and Price.
- Market cap is the total value of company’s outstanding shares. For penny stocks the market cap setting should be ‘Micro’ or ‘Small Cap’.
- Dividend Yield is a financial ratio that is calculated from dividing a stocks total dividend payments to shareholders by its market cap. Typically investors are looking for a dividend yield of at least 3% per year.
- Average volume is the number of shares traded per day. Penny stocks can illiquid so I only recommend trading stocks that you can easily buy and sell. You should avoid illiquid stocks like the plague, for this setting I wouldn’t go any lower 50,000.
- Price is set to $5 but you can slightly raise it find safer investment opportunities.
Penny Stock Risks
The majority of penny stocks are terrible companies that struggle to survive financially but there are some diamond in the rough. Most will drop in share price overtime as they fail to become profitable and establish a viable business model. Others will produce explosive returns of 100%-500%. To reduce your level of risk, going with a small cap stock paying a dividend is a strategy worth exploring. For example buying 10,000 shares of a stock trading at $1 with a dividend of $0.05 per share means a return of $500 each year. Over a year, even if the stock drops to $0.95 you’ll be at a breakeven point discounting broker fee’s.