Smart investors always search for underutilized prospects with room to expand and provide stability. Here, you’ll find three of these undiscovered gems. These dividend stocks, though overlooked, provide attractive chances to expand holdings and realize long-term gains.
The first one offers a special opportunity to profit from the growing market for cannabis cultivation and processing facilities. The company leads a nexus of real estate in the rising cannabis sector. The second, on the other hand, is notable for its strategic emphasis on senior secured loans. This prioritizes risk minimization while offering investors exposure to a wide range of industries. It is positioned as a dependable revenue source in erratic market situations because of its consistent net leverage ratio and sensible practices.
Ultimately, the third one has taken advantage of the growing market for smokeless alternatives to diversify its sources of income deliberately. The company’s New Categories sector, which focuses significantly on innovation and product development, offers a remarkable growth prospect.
Hence, investors can profit from distinct market niches and beat more general market indexes by exploring these hidden treasures.
Overlooked Dividend Stocks: Innovative Industrial Properties (IIPR)
With a 7.4% dividend yield (forward), Innovative Industrial Properties’ (NYSE:IIPR) property portfolio holds 108 properties across 19 states or around 8.9 million rentable square feet. Geographic and tenant concentration risks are reduced, as no state or tenant accounts for more than 15% of the yearly base rent.
Additionally, Innovative Industrial Properties maintains a high-quality tenant roster, with 90% of yearly base rent coming from multi-state operators (MSOs). Similarly, 62% of yearly base rent is derived from operators of public companies. The company has contacts with some of the biggest and most seasoned operators.
Furthermore, there is consistency and predictability in the cash flows due to the weighted average remaining lease term of 14.6 years. As a result, this solidifies the revenue stream. The fact that Innovative Industrial Properties has no major debt maturities until May 2026 improves its flexibility and liquidity position even more.
Finally, with 100% rent collection for Q4 2023 and year-to-date through February 2024, Innovative Industrial Properties’ leasing activity remained strong. In short, the tenant’s creditworthiness and the properties’ critical role in facilitating cannabis activities reflect the company’s fundamental ability to attain rent fully.
Oaktree Specialty Lending (OCSL)
With a concentration on senior secured loans, Oaktree Specialty Lending (NASDAQ:OCSL) holds and manages a varied portfolio. With that, the company pays an 11.4% forward dividend yield. The investment portfolio includes 146 firms with a combined fair value of $3 billion (2023).
With investments in both debt and equity, this diversified portfolio gives exposure to an array of markets and vertical industries. Thus, the company seeks to minimize risk and optimize returns by giving high priority to investments.
Moreover, the net leverage ratio of Oaktree Specialty Lending was steady between 0.9x and 1.25x, which was the intended range. The company maximizes profits for its stockholders while maintaining a solid balance sheet and financial flexibility thanks to its smart leverage management. Furthermore, the debt composition, including 57% unsecured borrowings, indicates the company’s capital structure strategy.
Finally, Oaktree Specialty Lending’s joint ventures own $450 million in investments, mostly in widely syndicated loans distributed among 54 portfolio firms. To sum up, higher interest rates benefit primarily variable loans, as seen by the joint ventures’ annualized return on equity of about 15%.
British American Tobacco (BTI)
British American Tobacco (NYSE:BTI) has seen solid growth in its New Categories business, propelled by-products such as Velo and Vuse. The company is yielding a 10.4% forward dividend. According to the corporation, revenue from New Categories increased significantly, with organic revenue rising by 21% at constant rates in 2023. This expansion shows how British American Tobacco has successfully entered and maintained its position in the developing market for smokeless alternatives.
Significantly, Non-Combustibles now account for 16.5% of Group sales, up 1.7% from 2022. This suggests that the revenue mix of British American Tobacco is shifting in favor of smokeless goods. Hence, the robust revenue increase driven by volume in New Categories highlights the efficacy of British American Tobacco’s multi-category approach in broadening its range of products.
Furthermore, reaching profitability in New Categories in 2023 is vital — two years ahead of schedule. Furthermore, with excellent category contribution margins above 20%, the top 10 new category markets accounted for almost 75% of new category revenue in 2023. Therefore, this illustrates the profitability and scalability of British American Tobacco’s New Categories division and valuation growth potential.
As of this writing, Yiannis Zourmpanos held long positions in IIPR, OCSL and BTI. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.