We recently compiled a list titled 10 Best Dividend Penny Stocks to Buy Now. In this article, we will look at where Orion Office REIT Inc. (NYSE:ONL) ranks among the best dividend stocks to buy now.
Penny stocks, typically defined as shares trading below $5, present a unique opportunity to investors who wish to buy stocks at “ground floor” prices. Investors usually buy such stocks in hopes of them soaring off. However, even though penny stocks may be low-priced, they do come with a lot of risk. Since such stocks don’t necessarily have to disclose the same type of information as other stocks on established exchanges, are susceptible to “pump and dump” schemes, may have low liquidity, and are often thinly traded, investing in them isn’t for the faint of the heart. For example, in 2018, one stock promoter was convicted for inflating share values by approximately $100 million through such schemes. Nevertheless, investors may often find themselves looking for such cheapest stocks that pay the highest dividends. This strategy is particularly appealing to income-focused investors, especially those who don’t have a lot of capital to invest but are looking for a consistent flow of income.
This is because even with a small portfolio allocation, penny stocks can have massive impacts on total portfolio returns. When some of the hottest penny stocks surge, they often deliver multi-bagger returns in a matter of weeks. That said, the outlook for 2024 remains rather mixed. While potential rate cuts may support asset markets, persistent growth concerns and geopolitical tensions serve as headwinds. Economic growth is expected to decelerate significantly, with forecasts indicating a slowdown to around 0.7% real GDP growth. This slowdown could dampen consumer spending, which is a significant driver for many companies, such as those in the penny stock sector.
Moreover, while penny stocks are notorious for being inherently risky and suitable for short-term gains, not all of them necessarily are. In fact, some penny stocks can be hidden gems to invest in, offering exponential gains to their investors. The trick lies in careful fundamental analysis and assessing why a particular penny stock is trading at its current price. Other factors to look at include industry potential, a sound management team, and transparency. Penny stocks are not only attractive to retail investors, but institutional investors and hedge funds have also started taking interest in them over the years. For instance, ARK Investment Management, Renaissance Technologies, and Citadel Advisors are some prominent funds investing in penny stocks that show promise in areas such as biotech, technology, and other industries, taking calculated risks to capitalize on long-term gains.
As of September, there are an estimated 1,800 stocks listed on major American stock exchanges that are trading at $5 per share, or less. Even though many of these stocks come with their fair share of problems, such as a poor balance sheet, there are yet many others that are worthy of discussion. It pays to know that penny stocks, particularly those penny stocks that give dividends, are capable of providing unique investment opportunities. While investors should proceed with caution when approaching these stocks, doing so with a calculated approach may often prove to be successful.
Methodology
Even though penny stocks aren’t the most preferred choice of risk-averse investors during market downturns, there are still many good penny stocks that give high dividends. To compile our list of best dividend penny stocks to buy now, we screened for stocks that have a share price of $5 or below, with 5% or above dividend yields. Next, we scanned Insider Monkey’s proprietary database of hedge funds and picked 10 penny stocks with the highest number of hedge fund investors.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Orion Office REIT Inc. (NYSE:ONL)
Number of Hedge Funds: 14 (2024Q2)
Share Price as of the Close of September 25: $4.1
Orion Office REIT Inc. (NYSE:ONL) is a fully integrated real estate investment trust engaged in the ownership, acquisition, and management of a diversified portfolio of high-quality office buildings located in strong suburban markets across the U.S.
During the second quarter of 2024, Orion Office REIT Inc. (NYSE:ONL) generated a revenue of $40.1 million, a decline from $52 million in the same quarter of 2023. Over the years, the company has been dealing with declining profitability levels and lower-than-average occupancy rates. With more and more employees preferring to work from home, owning and investing in office spaces hasn’t proved to be an ideal situation for the company.
On a positive note, ONL has completed 633,000 square feet of lease transactions in 2024, more than doubling the total for all of the previous year. Moreover, its portfolio is strategically spread across various tenants, industries, and geographic locations, thereby reducing the risk of dependency on a single tenant or sector. 72.3% of its tenants are investment grade, which implies that the company benefits from reliable income as such tenants are less likely to default on lease payments. Moreover, none of its tenants represent more than 15% of the portfolio by ABR (Annualized Base Rent). Orion’s diverse portfolio and high-quality tenants are expected to ensure stable, recurring cash flow to support business growth. Tenants such as the Government Services Administration (rated AA+) and Merrill Lynch (rated A-) provide a reliable foundation for cash flow projections, as their high credit ratings indicate strong financial stability and lower default risk.
Orion Office REIT Inc. (NYSE:ONL) has repaid $9 million in debt this quarter, bringing its total debt reduction to $158 million since the spin-off from Realty Income. Next Century Growth Investors, LLC also highlighted the growth prospects for the company in its Q2 2024 investor letter:
“Orion Group Holdings, Inc. (NYSE:ORN) is a leading provider of marine construction services and vertical concrete construction. In marine, they are a leader in enabling the buildout, expansion, and maintenance of ports in the United States. ORN’s size, scale, and ability to maintain and grow their equipment fleet relative to a highly fragmented end market allows them to drive growth and profits. There are numerous government and military spending initiatives within the marine segment so the growth outlook should remain strong.”
As of June 30, 2024, the Company had $267.9 million in liquid assets, which includes $24.9 million in cash and cash equivalents. The dividend declared for the second quarter of 2024 is $0.10 per share, with a dividend yield of 9.63% as of September 24, 2024.
According to Insider Monkey’s database, for the second quarter of 2024, 14 hedge funds had stakes in Orion Office REIT Inc. (NYSE:ONL), representing a total worth of $194.55 million. Renaissance Technologies increased its holdings in Orion by 36% compared to the previous quarter and is the largest stakeholder in the company as per our database.
Overall, ONL ranks 8th among the best dividend penny stocks to buy now. While we acknowledge the potential of ONL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ONL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published on Insider Monkey.