5 More Small Cap Dividend Stocks that may be Undervalued

Yesterday I listed 5 small stocks that pay good dividends and are excellent values. Today I list 5 more stocks for your consideration. If you want to review the screening criteria, it is the same as the previous list and you may want to go back and refresh your memory here.

As was the case earlier, this list is dominated by financial companies including banks and insurance. As you read their balance sheets, pay attention to the liabilities section and be sure to figure out the real debt as opposed to customer deposits that are technically liabilities (the banks temporarily hold this cash and are required to post it as a liability against the cash asset).

1. EMC Insurance Group Inc (EMCI):

EMC Insurance is a property and casualty insurance company that is also active in reinsurance market. The $370 million market cap company yields 3.00% in dividends and the stock currently can be bought for 0.9 times book value. Most insurance company stocks trade for 1 – 1.5 times book value. The P/E ratio is also low at 8.73 compared to an industry average of around 12. The company continues to be profitable and has been growing its book value consistently. While I wouldn’t say the stock is overwhelmingly undervalued, if you want to buy an insurer, this is one of the cheaper stocks around with an attractive dividend.

2. Athens Bancshares Corporation (AFCB):

A fairly small regional bank out of Athens, TN, with just about $39 million in market value. The dividend is nice and steady at 1.1%. At 0.85 times book, the stock is fairly cheap and the company holds about $31 million in cash and does not carry any long term debt. The ongoing operations of the bank appear to be valued very little by the market although the bank is profitable and generates positive cash flow. One of the reasons why smaller banks are valued at a discount is that the growth rate is tied too much to the economy and demographic trends unless there are structural changes in the market.

3. Northeast Community Bancorp (NECB):

This is another small community bank in New York. Although the market capitalization is about $87 million, the stock is fairly illiquid. The stock can be bought at 0.83 times book value and the company pays a 1.8% dividend at the current prices. The stock has done well over the last year, up about 35% but the profitability has been irregular. It is worthwhile to look deeper in the stock and most likely you will end up removing it from further consideration. In the last year the company has had top management changes as well as replaced its accounting firm so there are certain red flags to keep in mind. Despite these issues I do want to bring this stock up as many a times these situations bring about terrific values. Whether this is the case or not needs further investigating.

4. Jacksonville Bancorp Inc. (JXSB):

A P/E ratio of about 10, P/B ratio of 0.91 and a dividend yield of 1.6% means the stock of this bank out of Jacksonville, IL may be fairly attractive. The company is profitable with reasonably strong balance sheet and has about $32 million in cash and investments over and above required to cover the deposits and other liabilities (quick review of the balance sheet). Since the market value is about $36 m, I would say the balance sheet is pretty strong. Should be worth a further look.

5. Kelly Services Inc. (KELYA):

The staffing services provider has done reasonably well in the recent years, with growth rates touching 36%/yr in the last 5 years, and the stock is up about 43% in the last year. Even at current prices, it only trades at 14.67 times earnings and 0.90 times book. The dividend is solid 1.1%. More than the valuation though, you have to make a judgment on the job market going forward. As and when employers reach diminishing returns in terms of wringing out productivity from existing labor (and supplementing it with temporary staff as needed), the need for Kelly’s services will start declining. Until that happens, this should be a safe stock to be invested in. The current estimates are for the company to deliver 14% growth next year, but it is all dependent on how the economic conditions play out.

Hope this list and the one posted yesterday gives some ideas for your portfolio. I will start looking at these stocks a little deeper and post my more considered opinion over the next few weeks.

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