Highest-Yielding Dividend Stocks Under $5

NEW YORK ( TheStreet) -- Investors bruised by the recent stock market correction have turned to dividend-paying stocks for stability, and several under-$5 names like Chimera Investment ( CIM) offer outsized dividend yields to those willing to take the risk.

Dividend stocks are attractive during times of uncertainty because of the consistent cash payout. While share prices can move sharply, as evidenced in the so-called "flash crash" on May 6 when the Dow Jones Industrial Average dropped nearly 1,000 points intraday, dividends typically hold steady. Over the last month, the Dow has fallen roughly 10%, putting the index in correction territory.

Chimera Investment's Big Dividend Yield

"When the markets start correcting, investors normally gravitate toward more defensive stocks," says Paul Nolte, managing director with Dearborn Partners. "Those defensive stocks typically have consistency in earnings and a bulk of them pay dividends and may even increase dividends. Investors can get money while they're waiting for the market to turn around in addition to owning a company that has a pretty good earnings flow."

Some companies, like Dow members Verizon ( VZ), Pfizer ( PFE) and Kraft Foods ( KFT), offer steady returns through dividends.

But for several stocks trading under $5, the dividend yield -- and risk -- are much greater. For long-term investors, the recent pullback has afforded a lower entry point in several high-yielding dividend stocks under $5, including Chimera, Universal Insurance Holdings ( UVE) and Primedia ( PRM).

Nolte warns that investors looking for dividend-paying stocks that trade below $5 should look at potential candidates closely to see if the dividend will be safe.

"What you have to look for more than anything is coverage, meaning is the dividend covered by cash flow and/or earnings," Nolte says. "What you don't want is to buy a company that is paying out 20 cents a share only to have the dividend cut to a nickel or a penny or even eliminated altogether."

TheStreet narrowed the vast number of dividend-paying, under-$5 stocks by including only those companies based in the U.S. with a yield above 2%. Continue on to view the top dividend stocks trading below $5, sorted by annual yield.

>>Find Ex-Dividend Dates With Our Dividend Calendar

Chimera Investment ( CIM)

Closing price: $3.77 (May 26)

Annual Dividend: 68 cents

Dividend Yield: 18% (forward annual)

Price-to-Book: 1.12

Price-to-Earnings: 5.19

Recent developments: On May 6, Chimera Investment reported a first-quarter profit of 19 cents a share, topping the Thomson Reuters average estimate for a profit of 14 cents a share. In early April, Chimera announced a public offering of 85 million shares of common stock for roughly $307 million in proceeds. Chimera trades at a discount on a price-to-book and price-to-earnings basis compared to the average of real estate investment trusts.

Universal Insurance Holdings ( UVE)

Closing price: $4.71 (May 26)

Annual Dividend: 40 cents

Dividend Yield: 8.5% (forward annual)

Price-to-Book: 1.90

Recent developments: Earlier this week, Universal Insurance declared its latest dividend, payable on July 15 to shareholders of record on June 17. On May 10, Universal Insurance said it had first-quarter net income of $8.3 million, or 21 cents a share, down from a year-ago profit of $12.4 million, or 31 cents a share. The company attributed the decline to continuing pressure on operating results because of state-mandated wind-mitigation credits and higher reinsurance costs. While Universal Insurance's P/E ratio trailing 12 months is slightly above other nonlife insurance companies, it trades at a discount on a price-to-book basis.

Primedia ( PRM)

Closing price: $3.60 (May 26)

Annual Dividend: 28 cents

Dividend Yield: 7.8% (forward annual)

Recent developments: On April 29, Primedia reported first-quarter earnings from continuing operations of 6 cents a share, compared with a year-ago loss of a penny a share. Total revenue fell to $59.3 million from $68.5 million in the year-ago period. Primedia said that given general economic and market conditions, it has limited visibility around 2010 revenue. It currently expects to see a 5.5% to 6.5% year-over-year decline in second-quarter apartment revenue. Investors should be warned that Primedia currently has a book value per share of -$2.34, although a P/E ratio trailing 12 months of 7.79 is below that of many other fellow media companies.

QC Holdings ( QCCO)

Closing price: $3.70 (May 26)

Annual Dividend: 20 cents

Dividend Yield: 5.4% (forward annual)

Price-to-Book: 0.95

Price-to-Earnings: 4.55

Recent developments: On May 6, QC Holdings reported first-quarter income from continuing operations of 30 cents a share, down 36 cents a share in the year-ago quarter. The company blamed law changes that restrict customer access to payday loans in Washington and South Carolina for the "significantly reduced earnings." Revenue fell to $48.8 million from $54.5 million in the 2009 quarter. QC Holdings said that the existing payday loan law in Arizona terminates at the end of June and could pose problems for the company. Even so, QC Holdings is attractive due to low price-to-earnings and price-to-book ratios compared to its peers.

MicroFinancial ( MFI)

Closing price: $3.69 (May 26)

Annual Dividend: 20 cents

Dividend Yield: 5.4% (forward annual)

Price-to-Book: 0.80

Recent developments: On April 21, MicroFinancial reported first-quarter net income of 4 cents a share, matching earnings in the year-ago quarter. Revenue increased to $12.3 million compared to $10.9 million in the first quarter of 2009. Compared to competitors CIT Group ( CIT) and California First National ( CFNB), MicroFinancial doesn't offer investors much on a price-to-book or price-to-earnings basis.

Advance America, Cash Advance Centers ( AEA)

Closing price: $4.83 (May 26)

Annual Dividend: 24 cents

Dividend Yield: 5.2% (forward annual)

Price-to-Book: 1.37

Price-to-Earnings: 4.98

Recent developments: On April 28, Advance America Cash Advance Centers reported a first-quarter profit of 22 cents a share, which was a penny below the Thomson Reuters average estimate. Revenue was down 7.7% from a year ago to $144.4 million, which was also below consensus. Advance America, Cash Advance Centers is attractive on a price-to-earnings and price-to-book basis compared to its peers, including QC Holdings.

The Standard Register Co. ( SR)

Closing price: $3.69 (May 26)

Annual Dividend: 20 cents

Dividend Yield: 5.4% (forward annual)

Price-to-Book: 2.56

Price-to-Earnings: 23.88

Recent developments: On April, Standard Register said its first-quarter loss narrowed to 3 cents a share from a year-ago loss of 38 cents a share. On an adjusted basis, the company said it earned 8 cents a share in the quarter, down from a year-ago adjusted profit of 14 cents a share. Standard Register's price-to-book ratio is slightly below the average of its peers, although its price-to-earnings ratio is well above many of its competitors.

Bank of Commerce Holdings ( BOCH)

Closing price: $4.85 (May 26)

Annual Dividend: 24 cents

Dividend Yield: 5% (forward annual)

Price-to-Book: 0.96

Price-to-Earnings: 10.34

Recent developments: On April 30, Bank of Commerce Holdings reported first-quarter earnings of 15 cents a share, up from a year-ago quarter as well as the fourth quarter of 2009. The provision for loan losses increased to $2.3 million from $1.4 million in the year-ago quarter, although non-performing assets were 2.02% of total assets, which was down from both the fourth quarter and first quarter of 2009. In March, the company raised $30.6 million through a secondary offering of common shares. Bank of Commerce Holdings currently trades at book value, and its price-to-earnings ratio is a discount compared to its closest peers.

Horizon Lines ( HRZ)

Closing price: $4.08 (May 26)

Annual Dividend: 20 cents

Dividend Yield: 4.9% (forward annual)

Price-to-Book: 1.46

Price-to-Earnings: 20.59

Recent developments: On May 19, Horizon Lines said its motion to dismiss a securities class-action lawsuit accusing the company and certain current and former senior officers of misleading investors has been granted by a federal judge for a second and final time. The announcement came a day after Moody's Investment services cut its rating on Horizon Lines to Caa1 from B3, citing liquidity concerns. For investors, Horizon Lines doesn't offer much value in terms of its price-to-earnings ratio, which is above that of competitor Trailer Bridge ( TRBR), although its price-to-book ratio is well below that of its rival's 40.36.

Electro-Sensors ( ELSE)

Closing price: $3.87 (May 26)

Annual Dividend: 16 cents

Dividend Yield: 4.1% (forward annual)

Price-to-Book: 1.26

Recent developments: On May 11, Electro-Sensors said first-quarter net sales jumped 21.7% from a year ago to $278,000, attributing the increase to the loosening in capital markets and "a slight increase in capital spending in our core industries." Meanwhile, income before income taxes of $129,000 swung from a year-ago loss of $48,000. Electro-Sensors' price-to-book ratio offers a discount to the average of its closest peers, including Honeywell ( HON) and Danaher ( DHR).

-- Reported by Robert Holmes in Boston.

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