Investors are rotating into small caps, and analysts love these dividend-paying names

Small-cap stocks have been perking up as of late as investors rotate out of their big tech winners — and a few of these names also happen to offer attractive dividends. Investors’ move to sell out of their Big Tech names, including Nvidia and Meta Platforms , has resulted in a 1.7% decline for the Nasdaq Composite in July. But the small-cap benchmark Russell 2000 is up 8% this month as investors bet on rate cuts from the Federal Reserve. Indeed, lower rates are a boon for small caps, which tend to carry debt on their books. Select small caps also pay their shareholders dividends, meaning they may be poised to offer a combination of price appreciation and income if these smaller stocks get a tail wind from rate cuts. However, small caps can be especially risky for investors. For starters, they are sensitive to the economy. They may also have high dividend payout ratios, meaning companies are distributing a sizable amount of their earnings to shareholders as dividends — and that means those companies may be more likely to cut those income payments if times get tough. CNBC Pro used FactSet data to screen the iShares Russell 2000 ETF (IWM) for companies listed on the Nasdaq Stock Market or the New York Stock Exchange. These names must offer a dividend yield of at least 3%. They must also be preferred by Wall Street, with buy or overweight ratings from at least 60% of analysts covering them, and upside to their consensus price target of at least 10%. Here are the stocks. Northern Oil and Gas made the grade. The oil and gas company is rated buy or overweight by 83.4% of the analysts covering it, and offers a dividend yield of 4.2%. Just last week, Roth MKM raised its estimates for Northern Oil’s second-quarter earnings, calling for $1.39 per share, up from $1.24 per share. The firm, which rates the stock as buy, also increased its fourth-quarter production estimate, citing the company’s recent joint acquisition with SM Energy of Uinta Basin assets from Xcel Resources. Northern Oil will have a 20% undivided stake in these assets for $510 million in cash. Shares are up more than 3% in 2024, and consensus price targets suggest the stock could rise nearly 28% from current levels. NOG YTD line NOG’s 2024 performance Atlas Energy Solutions , a logistics-services company that works with the oil and gas industry, is also on CNBC Pro’s list. The stock is up close to 18% this year, and offers a 3% dividend yield. Wall Street loves Atlas Energy, with all 13 analysts covering the stock rating it buy or overweight. Piper Sandler is overweight on the stock, but recently trimmed its price target to $27 from $29, “based on 4.9x (unch) ’26e [enterprise value/ earnings before interest, taxes, depreciation, and amortization].” “Headed into earnings, OFS [oilfield equipment and services] sentiment is fairly poor, and we have a hard time poking holes in this aside from some positioning that could get squeezy,” wrote Luke Lemoine, Piper Sandler analyst in a July 14 report. “OFS names appear cheap, but this appears to be the common OFS value vs value trap. We believe it’s more of the latter.” Nevertheless, consensus price targets see more than 30% upside to current levels. AESI YTD mountain AESI in 2024 Finally, drilling company Patterson-UTI Energy made the list. Stifel rates the stock a buy, but lowered its price target to $16 from $19 on July 15. Analyst Stephen Gengaro remains upbeat on the company, however, citing “continued capital discipline and strong FCF [free cash flow] projections. We expect at least 50% of FCF will be returned to investors through dividends and buybacks.” Nearly 74% of analysts rate Patterson-UTI buy or overweight, and consensus price targets suggest 43% upside. Shares are off nearly 8% in 2024, and the stock has a dividend yield of 3.2%. — CNBC’s Fred Imbert contributed reporting.