A microcap with a 5.9% yield that is suitable for conservative portfolios based on…
Toilet paper.
It isn’t glamorous but it is profitable. And, is there anything more essential?
There’s a very small company, Orchids Paper Products (NYSE: TIS) that, for a microcap, has been amazingly profitable, stable and stockholder friendly.
Its market cap is only $194 million, but its Beta is only 0.14. That means it is about one-tenth as volatile as the broad market. It has tripled its dividend in the last two years and is scheduled to raise it again for the June payment period.
TIS is not just stable, it also has a long history of positive earnings growth and since 2010 has tripled the return of the S&P 500 – and that’s not counting the dividends.
TIS’s success is driven by a unique business plan. It ships its paper products only in a 900-mile radius of Oklahoma. By limiting shipping costs its customers can sell their products below their competitors and still make a profit. It has worked very well for many years.
Earnings are expected to increase by 10% year-over-year, and revenues by 6%.
Despite selling at just below its 52-week high, it is priced at about one-third of its industry average for both its price-to-book and price-to-sales ratios. So its stock price should have upside room. But with a 5.9% dividend it is worth owning just for the income.
TIS does a lot of its sales to private brands such as Dollar General (NYSE: DG), but it is planning to expand into the mid to upper levels of the retail market, which should give it more upside in both areas.
The one limiting factor is the size of this company. It is a microcap and that would usually make it less attractive to retired investors. Most microcaps do not fit the profile we want for our holdings, but its stable price history and 5.9% dividend make it a viable choice for conservative investors if they don’t get too piggish about it.
Retired and about-to-retire investors can own this stock in small amounts as a kicker to their income. It has the earnings, is in an essential industry, pays a great dividend, is stockholder friendly, and is less volatile than the broad market, but don’t get overloaded on this one. Despite its history and returns, it is still a microcap.