The Russell 2000 is a stock market index that tracks the performance of approximately 2,000 small-cap companies in the United States. It is part of the broader Russell 3000 Index, which covers about 98% of the U.S. equity market, but specifically focuses on smaller companies with market capitalizations typically ranging from $300 million to $2 billion. These firms are often considered riskier but can offer higher growth potential compared to larger, more established companies. In what has already been an unusual year for stocks, the small-cap index is crushing its rivals, up 5.8% through last Friday. The only other index with a positive return is the venerable Dow Jones Industrial Average, up just 0.1% this year.
Historical data show that small-cap stocks tend to lead in the years following major market downturns. For example, after the 2008 financial crisis, the Russell 2000 significantly outperformed the S&P 500 from 2009 to 2011. However, small caps can underperform during recessions or high uncertainty due to their higher risk and lower liquidity. While our recent sell-off doesn’t qualify as a significant market meltdown, many of the higher-yielding stocks in the Russell 2000 are still offering intriguing entry points.
We screened the index for stocks and identified five that appear to be quality growth and passive income ideas now. Passive income is characterized by its ability to generate revenue without requiring the earner’s continuous active effort, making it a desirable financial strategy for those seeking to diversify their income streams or achieve financial independence.
Buckle
This popular retailer offers good value for shareholders and a solid 2.60% dividend. Buckle (NYSE: BKE) is a retailer of casual apparel, footwear, and accessories that operates approximately 441 retail stores in 42 states. It markets a wide selection of casual apparel, including denim, other casual bottoms, tops, sportswear, outerwear, accessories, and footwear. It also provides customer services, such as free hemming, free gift packaging, easy layaways, the Buckle private-label credit card, and a guest loyalty program.
Buckle offers denims from brands such as:
- Flying Monkey
- Hidden
- KanCan
- Levi’s
- Miss Me
- Rock Revival
- Wrangler
- 7 For All Mankind
Other key brands include Affliction, American Fighter, Ariat, Billabong, Birkenstock, Free People, Goorin Bros., Hey Dude, Hooey, Howitzer, Hurley, K. Swiss, Kimes Ranch, Lost Calf, Mia, Oakley, Old Row, Pendleton, Ray-Ban, Reebok, Ridge, RVCA, SOREL, Steve Madden, Sullen, Very G, White Crow, and Z Supply.
Commercial Metals
Based in Texas, Commercial Metals (NYSE: CMC | CMC Price Prediction) has ongoing demand from the construction industry and pays a small 1.12% dividend. This company offers products and technologies to meet the critical reinforcement needs of the global construction sector. Its solutions support construction across a wide variety of applications, including:
- Infrastructure
- Non-residential
- Residential
- Industrial and energy generation
- Transmission
Its North America Steel Group segment provides a diverse range of products and solutions to support the construction sector. The Europe Steel Group segment comprises a vertically integrated network of recycling facilities, an EAF mini-mill, and fabrication operations located in Poland. And the Construction Solutions Group segment’s portfolio consists of its construction services products, Tensar products and solutions, impact metals, and performance reinforcing steel products. It is also a supplier of precast concrete and pipe products.
J.P. Morgan has an Overweight rating with an $83 target price.
Main Street Capital
Main Street Capital (NASDAQ: MAIN) has helped over 200 private companies grow or transition by providing flexible private equity and debt capital solutions. This stock is a favorite across Wall Street and offers a substantial 5.59% monthly dividend. This business development company has a strong history of monthly dividends and relatively conservative lending practices. The firm holds a BBB− investment-grade credit rating and has much less debt than regulators allow, making it one of the few monthly dividend-paying stocks to earn a “Safe” Dividend Safety Score.
The firm also provides debt capital to middle-market companies for:
- Acquisitions
- Management buyouts
- Growth financings
- Recapitalizations
- Refinancing
The firm seeks to partner with entrepreneurs, business owners, and management teams and generally provides “one-stop” financing options within its lower-middle-market portfolio. Main Street Capital typically invests in lower-middle-market companies with annual revenues between $10 million and $150 million. The firm’s middle-market debt investments are in businesses that are generally larger than those of its lower middle-market portfolio companies. It also creates majority and minority equity.
Royal Bank of Canada has an Outperform rating with a $66 target price.
Starwood Property Trust
Starwood Capital is a well-established global investor with international investments across more than 30 countries and an affiliate of Starwood Property Trust (NYSE: STWD), which boasts a 10.90% dividend yield, and it is led by real estate legend Barry Sternlicht. Starwood Property Trust operates as a REIT in the United States, Europe, and Australia. Since going public 15 years ago, it has kept its dividend intact, never once reducing it, and has held its current payout steady for more than 10 years.
The company’s loan portfolio spans commercial, residential, and infrastructure assets, and it operates with a conservative leverage ratio below 3x. Its four operating segments are:
- Commercial and Residential Lending
- Infrastructure Lending
- Property
- Investing and Servicing
The Commercial and Residential Lending segment:
- Originates, acquires, finances, and manages commercial first mortgages
- Non-agency residential mortgages
- Subordinated mortgages
- Mezzanine loans
- Preferred Equity
- Commercial mortgage-backed securities (CMBS)
- Residential mortgage-backed securities
The Infrastructure Lending segment originates, acquires, finances, and manages infrastructure debt investments, while the Property segment primarily develops and manages equity interests in stabilized commercial real estate properties, including multifamily and net-leased commercial properties, held for investment purposes.
The Investing and Servicing segment:
- Manages and works out problem assets
- Acquires and contains unrated, investment-grade, and non-investment-grade rated CMBS comprising subordinated interests of securitization and re-securitization transactions
- Originates conduit loans to sell these loans into securitization transactions and acquire commercial real estate assets, including properties from CMBS trusts
Keefe, Bruyette & Woods has an Outperform rating and a $22 price target.
UMB Financial
This financial firm traces its lineage back to the Kemper Financial legacy in Missouri and pays a 1.36% dividend. UMB Financial (NASDAQ: UMBF) is a financial services company operating via these segments:
- Commercial Banking
- Institutional Banking
- Personal Banking
Commercial Banking includes:
- Comprehensive deposit, lending, investment, and retirement plan services
- Personal banking, which includes comprehensive deposit, lending, wealth management, and financial planning services
- Institutional banking, which includes asset servicing, corporate trust solutions, investment banking, and healthcare services
The segment serves the commercial banking and treasury management needs of its small to middle-market businesses through a variety of products and services.
Institutional Banking is a combination of banking services, fund services, asset management services, and healthcare services provided to institutional clients. And Personal Banking products include deposit accounts, retail credit cards, private banking, installment loans, home equity lines of credit, and residential mortgages.
BofA Securities has a Buy rating with a $148 price objective.
Top Gaining Stocks
Top Losing Stocks