3 big-yield dividend stocks under $10

They're riskier small caps, but they're cheap sources of income.

By InvestorPlace Apr 27, 2012 11:29AM

Image: Money (© Corbis)By Jeff Reeves

Sometimes investors feel like they have to choose between low-priced stocks and high-dividend payers that can often be costly per share. Sure, Coca-Cola (KO) announced a 2-for-1 split to bring its share price down from almost $80 to under $40, but not all dividend payers are willing to execute a similar move. And to many investors who have small portfolios and don't like to buy a handful of shares, even $40 might be a bit pricey.

Thankfully, there are a handful of big dividend payers under $10 a share -- if you know where to look for them.

These companies are all small-cap investments, so they have more risk than blue chips like Coca-Cola. The risks include smaller operations that are not as reliable, thus affecting the safety of the dividend payout. A few of the picks also have very low trading volume -- so always use a limit order when buying shares, to protect yourself.

But if you're looking for cheap stocks with big dividends, this list is a great place to start. Always do your own research, but here are seven dividend stocks under $10 that I have identified as decent potential investments:

Arch Coal

4/27 Open: $9.68
Market Cap:
$2 billion

Let's be clear: Arch Coal (ACI) is no low-risk dividend pick, but a speculative investment. It has a wild 52-week range of $9.05-$35.06, with shares off 35% since mid-February alone. While this stock is under $10 right now, it remains unclear whether ACI stock is grossly oversold -- or whether it will continue to drop like a rock.

As a coal producer operating in Appalachia and in the West, there are a host of ugly headlines weighing on this stock -- an EPA crackdown on coal, the fact that natural gas is a cheaper and cleaner energy source, and lower demand from Europe and emerging markets. Still, 2012 earnings are forecast to almost double from fiscal 2011, and the company is riding eight straight quarters of year-over-year revenue increases. A little slowdown in momentum doesn't mean disaster, but it does mean you have to be willing to take on risk if you think Arch Coal will see a turnaround soon.

Of course, that 4.6% dividend is a nice buffer even if shares move sideways. ACI has paid dividends since 1997 and has been reliably paying 11 cents per share for four straight quarters.

Apollo Investment

4/27 Open: $7.40
Market Cap:
$1.4 billion

A yield of almost 11% seems too good to be true, right? Well consider that this yield for Apollo Investment (AINV) is calculated after a reduction in its dividend. Apollo previously paid 28 cents per quarter dating back to 2009. The reason for the cut was a quarterly loss in the second quarter because of poor performance of underlying investments. The dividend payout ratio was just too much to bankroll, so avoiding a cut was a mathematical impossibility with a $300 million loss on the quarter. However, looking forward, earnings are stabilizing and the company is projected to finish the year in the black.

Hopefully you understand the risks here -- invest in Apollo, and you are banking on losses stopping and dividends at worst staying steady. But if Apollo stumbles further, your yield -- as well as your underlying investment -- will both steadily decline.

The company is a subsidiary of Apollo Global Management (APO), run by former Drexel Burnham Lambert banker Leon Black, and has a storied history behind it. The only question is whether the company can make that 11% yield stick.

Eagle Rock Energy Partners

4/27 Open: $9.37
Market Cap:
$1.2 billion

Eagle Rock Energy Partners (EROC) is one of the many energy partnerships out there. This is a natural gas play, as Eagle focuses on processing and transporting natural gas and natural gas liquids. Everyone should know by now the trouble for natural gas companies, with prices at historic lows thanks to a massive supply.

However, Eagle Rock is not your typical natural gas play that is exploring or "fracking" new finds. It's simply a middleman, passing along natural gas to end-users and passing along nice dividends to shareholders. Profits are set to hum along at about 60 cents per share annually this year and next, right in line with 2011's performance, so it's unlikely the dividend will go down. And considering Eagle Rock's recent track record of steadily raising dividends -- from 15 cents per share in May 2011 to 20 cents a share in November 2011 to 22 cents a share payable in just a few weeks -- the 9.2% yield looks like its pretty safe.

And if you're looking for more options, we've got four more big-yield stocks under $10 per share.

Jeff Reeves is the editor of InvestorPlace.com, and the author of “The Frugal Investor's Guide to Finding Great Stocks.” Write him at editor@investorplace​​.com or follow him on Twitter via @JeffReevesIP. As of this writing, Jeff Reeves did not own a position in any of the investments named here.

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