Penny stocks have always attracted investors as a diversified portfolio can be created even with limited funds. Furthermore, penny stocks can deliver multi-bagger returns at a blink of an eye during a market euphoria. With the markets facing macroeconomic headwinds, my focus has been on fundamentally strong penny stocks. This column looks at some of the surprisingly high dividend penny stocks to buy.
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I also believe that these penny stocks are undervalued. On a conservative basis, these penny stocks with high dividend can also double in the next 12 to 18 months. This will magnify the total returns from these fundamentally strong stocks.
Healthy operating cash flows is the key screener that I have used. With robust cash flows, these companies are positioned to pay dividends and invest in growth or deleveraging.
Let’s discuss the reasons that will ensure strong dividends from these three undervalued penny stocks.
Nordic American Tankers (NAT)
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Nordic American Tankers (NYSE:NAT) is my top picks among high dividend penny stocks. An annualized dividend of 60 cents implies a yield of 16.26% and I believe that dividends are sustainable. NAT stock also trades at a forward price-earnings ratio of 5.4, which indicates significant undervaluation.
As an overview, Nordic American is an owner and operator of crude oil tankers. As of March, the company had a fleet of 19 Suezmax tankers. These tankers have a cargo lifting capacity of one million barrels of oil each.
For Q1 2023, the company reported time charter equivalent of $51,902 per day per ship. The company’s operating cost per vessel is about $8,000 per day per vessel. This has translated into strong upside in EBITDA margin. With a positive outlook for the industry (historically low order book for Suezmax tankers), higher day rates will ensure that dividends sustain.
Diana Shipping (DSX)
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Diana Shipping (NYSE:DSX) stock is another massively undervalued dividend paying penny stock. At a forward price-earnings ratio of 7.6, the stock seems poised for a rally. Further, DSX stock offers a robust dividend yield of 22.9%.
As an overview, the company provides shipping transportation services with a fleet of dry bulk carriers. As of Q1 2023, the company reported 42 vessels on water with a utilization of 99.4%. For the quarter, the company reported revenue of $72.6 million.
Importantly, the time charter equivalent rate for the quarter was $18,503. With daily vessel operating expense of $5,396, EBITDA has been robust. This has helped in delivering healthy cash flows and dividend.
On the flip-side, Diana Shipping reported $630.8 million in debt. This is unlikely to be a concern if time charter equivalent rates remain strong. The company has 79% fixed revenue days in 2023 and already 23% in 2024. The outlook therefore seems positive.
Kinross Gold (KGC)
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Kinross Gold (NYSE:KGC) stock is attractively valued at a forward price-earnings ratio of 13.2. Further, the company has a robust dividend yield of 2.47% and it’s likely that dividend growth will sustain.
Kinross Gold is fundamentally strong and as of Q1 2023, the company reported $1.7 billion in liquidity. The company also reported operating cash flow of $259 million for the quarter. With an annual OCF visibility of $1 billion, stellar dividend growth seems to be on the cards.
I am also bullish on gold as central banks continue to mop-up the precious metal for reserves diversification. Assuming a scenario where gold surges to new highs, I expect KGC stock to double from current levels.
With a stable gold production guidance through 2025, cash flows are secure. I must add that the company has ample financial flexibility to pursue acquisitions to boost the production profile.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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