Penny stocks, typically defined as shares trading below $5, have long attracted investors with the allure of high potential returns. These stocks offer investors the opportunity to buy at a low price with hopes of significant gains. However, penny stocks are not without their risks. Often, they come with low liquidity, thin trading volumes, and a lack of transparency, making them vulnerable to “pump and dump” schemes. Despite these challenges, penny stocks that pay dividends present a unique opportunity, especially for income-focused investors who may not have much capital but still seek consistent income. Why dividend-paying penny stocks are worth considering in the American market dynamics, and where a high dividend-paying stock Ambev S.A. (NYSE: ABEV) ranks among the best dividend penny stocks available now to invest is worth attention.
The Appeal of Dividend-Paying Penny Stocks
Penny stocks can be attractive because they offer the possibility of exponential gains, especially when some of the hottest stocks surge rapidly, delivering multi-bagger returns in just weeks. For investors focused on income, dividend-paying penny stocks provide a consistent return on investment while still maintaining the potential for growth.
These stocks are particularly enticing to those who don’t have much capital but still want a reliable stream of income. A smart approach involves a small portfolio allocation that can have a significant impact when penny stocks outperform. This strategy is appealing to risk-tolerant investors looking to maximize their returns, especially during market volatility.
Risks Associated with Penny Stocks
Penny stocks are risky due to their low liquidity and limited disclosures. Many companies issuing penny stocks are not required to disclose the same information as those listed on larger exchanges, making them susceptible to fraud. For example, in 2018, a stock promoter was convicted for inflating share values by approximately $100 million through illegal schemes. Therefore, it’s important to proceed with caution when considering penny stocks, conducting thorough due diligence.
Additionally, penny stocks can be thinly traded, meaning the volume of shares exchanged daily is often low, which can make it difficult to sell the shares when needed. Low liquidity can also result in higher price volatility, with large swings in share prices happening very quickly.
Why Ambev S.A. (NYSE: ABEV) Stands Out
Despite the inherent risks, some penny stocks stand out due to their strong fundamentals, sound management, and industry potential. One such stock is Ambev S.A. (NYSE: ABEV), a Brazil-based beverage giant engaged in the production and distribution of beer, soft drinks, and non-alcoholic beverages across Latin America, Central America, the Caribbean, and Canada.
Strong Financials and Growth
Ambev S.A. has consistently demonstrated strong financial performance. As of the second quarter of 2024, the company reported revenues of BRL 20 billion (US$4 billion), a 6.1% increase year-over-year (YoY). Net income during the period reached BRL 2,396.31 million (US$480 million), slightly lower than the previous year’s BRL 2,503 million (US$500.6 million).
Ambev’s Brazilian beer segment saw a 7% YoY revenue growth, supported by strong volume growth, while the Central America and Caribbean (CAC) regions saw a 3% YoY volume increase. This growth offset the weak performance in the Latin America South (LAS) and Canada divisions.
The company’s premium and super-premium brands, including Corona, Spaten, and Original, experienced strong volume growth in the low teens. In contrast, core brands like Brahma and Antarctica showed stability with slight volume increases in the low single digits. The company’s ability to cater to diverse consumer preferences has been key to its stable performance.
Dividends and Hedge Fund Interest
One of the primary reasons Ambev S.A. is attractive to investors is its high dividend yield. The company has managed to pay out, on average, 80% of its net income in the form of dividends and interest on capital (IOC). As of September 24, 2024, the company’s dividend yield stands at 6.48%, making it an appealing option for income-focused investors.
Furthermore, Ambev’s stability and growth have drawn attention from institutional investors. As of the second quarter of 2024, 18 hedge funds tracked by Insider Monkey held stakes in Ambev S.A., collectively representing investments worth approximately $1.97 billion. This level of institutional interest underscores Ambev’s potential as a long-term investment.
Penny Stocks and the Broader Market Outlook
The market outlook for 2024 is somewhat mixed. While potential interest rate cuts could support asset markets, concerns about economic growth and geopolitical tensions continue to weigh heavily. Economic forecasts indicate that real GDP growth is expected to decelerate to around 0.7%, which could dampen consumer spending, particularly in industries like beverages.
Despite these concerns, penny stocks that pay dividends remain attractive due to their potential for substantial returns. Even with small allocations, investors can see significant impacts on their overall portfolio when these stocks surge. However, a calculated and cautious approach is essential when investing in this sector.
Methodology
To compile our list of the best dividend penny stocks to buy now, we screened for stocks trading at $5 or below, with a dividend yield of 5% or higher. We then cross-referenced this list with hedge fund holdings from Insider Monkey’s proprietary database, focusing on the stocks with the highest number of institutional investors.
Conclusion: Why Ambev S.A. is a Strong Contender
While penny stocks may not be suitable for every investor, they offer unique opportunities for those willing to take on the associated risks. Dividend-paying penny stocks, like Ambev S.A. (NYSE: ABEV), stand out due to their potential for both income generation and long-term growth. With a strong financial performance, steady dividend payouts, and growing institutional interest, Ambev ranks high among the best penny stocks to consider for dividend-focused investors.
However, for investors seeking faster growth, the tech sector, particularly AI stocks, may offer greater promise. If you’re looking for an AI stock that trades at less than 5 times its earnings but shows significant growth potential, check out our latest report on the cheapest AI stocks available now.
