Penny Stocks and Dividends

For the most part, penny stocks enjoy the same rights and privileges as their larger cap peers. Broken down to its most basic elements, whether you’re looking to invest in Berkshire Hathaway or a dust covered penny stock, you want a company that has a good cash position, growing revenues, profitable, strong fundamentals, and great short and long-term growth potential.

One of the few areas where penny stocks tend to trail their larger brethren is in the world of dividends. For those not familiar, a dividend is a cash payout by a company to its stockholders.

Companies that raise a lot of cash, and are fairly stable (not growing rapidly or in financial trouble), reward stockholders by returning a sum of cash to them on a per share basis, usually in quarterly payments.

If a penny stock company offers a quarterly dividend of $0.10 per share and you have 1,000 shares, you will receive a check from the company for $100.

Most companies raise or lower their dividend after quarterly earnings results are released. A handful of companies have long histories of increasing dividends over time, and now offer a healthy dividend yield.

As you can probably guess, for any company to pay quarterly dividends, they have to be fundamentally sound and sitting on a pile of cash. This tends to cut a lot of penny stocks out of the equation. Primarily because most penny stock companies are small and do not have extra cash lying around.

While not common, there are, according to my Yahoo! stock filter, 111 penny stock companies out there ($0 - $5) offering dividends between 1% and 20%. That doesn’t mean you should chase a penny stock company just because they pay dividends. What it does mean is that you can diversify your penny stock portfolio with company’s that pay quarterly dividends.

Here are a couple fundamentally solid penny stock companies that offer dividends. Advant-e Corporation (ADVC - OTCBB) develops, markets, resells, and hosts software and provides services that allow its customers to send and receive business documents electronically in standard and proprietary formats.

The company has $2.96 million in cash, no long-term debt, and it just announced strong third quarter results. On November 11, the company announced that third quarter revenue climbed 10% year over year to $2.3 million. Net income was up 37% at $434,231 or $.006 per share; marking the company’s 29th consecutive profitable quarter.

On October 30, 2009, the company announced a cash dividend in the form of three separate payments of $0.01 per share by no later tha
December 31, 2009, June 30, 2010, and December 31, 2010.

A leader in alarm and event monitoring solutions, Telular Corporation (WRLS – Nasdaq) has over $23 million in cash and no long-term debt. On November 4, the company announced fourth quarter earnings slipped slightly to $1.36 million or $0.09 per share. Full year net income was up 94% at $3.61 million or $0.24 per share.

Additionally, the company announced the declaration of a regular quarterly dividend of $0.10 per share, payable November 22, 2010, to shareholders of record at the close of business on November 15, 2010.

"The dividend actions we are announcing reflect the culmination of Telular’s transformation to a recurring revenue model, with a consistent ability to generate operating cash flow,” said Joe Beatty, President and CEO.

“In addition to the special dividend, the board has declared a regular quarterly dividend of $0.10 per share. With net income before non-cash items for fiscal 2011 estimated at $8.0 – $9.0 million, we expect to grow our cash balance on top of the dividend actions announced today.”

Making money on the stock market with penny stocks is fun. Getting quarterly dividends just for being a share holder is even more fun.