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The uneven growth in the U.S. economy shows little sign of recovery. In fact, the investment market is becoming all the more jittery with the global qualms adding further uncertainty to what the market has been facing so far.

Brexit Confirmed: What Does it Mean to the U.S.?

A few hours ago Brexit was confirmed by a margin of 52% to 48%. And as most of the economists predicted, it has already started to take the shape of a catastrophe in the British market. Markets reacted with the pound plummeting against the USD at a rate unseen in the past three decades. The FTSE has been predicted to sink at a level of 10%. As per a report in The Independent.  this amounts to one of the biggest market shocks of all time.

While some say that the outcome is not likely to significantly impact the U.S. economy as a whole, it is quite impractical to believe that such a major upheaval will not have any kind of spillover effect on the nation, especially when the market is ultra-responsive to small changes.

In this context, Fed Chair Janet Yellen’s statement has done very little to assuage investor fears. She said, “I think it would usher in a period of uncertainty, and it is very hard to predict but there could be a period of financial market volatility that would negatively affect financial conditions and the U.S. economic outlook.”
 
Rate Hike and Labor Market

And why put the entire blame on Brexit? There are ample problems at home, particularly related to the job market. Although central bank policymakers are still optimistic about the health of the U.S. economy and are once again anticipating a small rate hike in July, seeing the miserable labor market performance over the past couple of months and failing to find any startling catalyst to shift the trend to another direction, we are not very sure about how the plan is going to mature.

How to Pick the Right Stocks?

Against this hostile backdrop, it is absolutely imperative on investors’ part to choose the right strategy to not only survive the market, but also to gain from adversity. We believe there can be no better time for investors to spend on solid dividend paying stocks. Not only do these stocks offer steady income but also provide a cushion against the huge equity market risks we are in. Dividend-paying stocks are historically proven outperformers over the long term and are relatively safe in terms of wealth creation.

Apart from a strong dividend yield history, we also recommend investors to prioritize on the value components while choosing stocks. While the big-cap glamorous stocks are mostly found to be overvalued in terms of several value metrics such as forward P/E or P/B, there are numerous small-cap stocks which successfully clear the value criteria and are excellent picks in terms of dividend yield.

Notably, our Value Style Score condenses all valuation metrics into one actionable score that helps investors steer clear of ‘value traps’ and identify stocks that are truly trading at a discount. Our research shows that stocks with a Value Style Score of ‘A’ when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) handily beat other stocks.

Accordingly, we’ve picked five small-cap stocks with a market cap of $500 million or less that offer a dividend yield of more than 5% and boast a favorable Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) along with an attractive Value Style Score A.

Our Picks

Headquartered in Plano, TX, BG Staffing, Inc. (BGSF - Free Report) is a national provider of temporary staffing services across a diverse set of industries. It offers commercial and professional temporary staffing, temp-to-perm, and permanent placement services to a variety of industries.

Market cap: $135.04 Million

Zacks Rank: #1

Value Score: A

Dividend Yield: 6.36%

Ellington Residential Mortgage REIT (EARN - Free Report) is a real estate investment trust that specializes in acquiring, investing and managing residential mortgage and real estate-related assets.
 
Market cap: $120.35 Million

Zacks Rank: #2

Value Score: A

Dividend Yield: 13.76%

Enviva Partners, LP (EVA - Free Report) processes the natural resource, wood fiber, into a transportable form -- wood pellets. The partnership owns and operates five plants in Northampton County and Ahoskie, NC; Amory and Wiggins, MS; and Cottondale, FL.
 
Market cap: $296.2 Million

Zacks Rank: #2

Value Score: A

Dividend Yield: 8.86%

Headquartered in Parsippany, NJ, PBF Logistics LP (PBFX - Free Report) is a fee-based, growth-oriented master limited partnership formed by PBF Energy to own or lease, operate, develop and acquire crude oil and refined petroleum products terminals, pipelines, storage facilities and similar logistics assets.

Market cap: $476.8 Million

Zacks Rank: #2

Value Score: A

Dividend Yield: 7.54%

Manning & Napier, Inc. (MN - Free Report) is a small-cap company providing a broad range of investment solutions as well as a variety of consultative services that complement its investment process.

Market cap: $142.4 Million

Zacks Rank: #1

Value Score: A

Dividend Yield: 6.76%

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