Small-cap stocks have faced significant headwinds in 2025, with the Russell 2000 entering bear market territory following President Trump’s sweeping tariff announcements in April. While the index has recovered somewhat, it remains approximately 15% below its previous high and down more than 5% year-to-date, compared to the S&P 500’s gain of over 1%.
However, this volatility has created compelling opportunities for income-focused investors. Bank of America’s equity strategist Jill Carey Hall sees “ample opportunity” in the small-cap space, noting that approximately 40% of Russell 2000 companies currently pay dividends – a higher prevalence than share buybacks in this segment.
The firm screened for Russell 2000 stocks with dividend yields exceeding the 10-year Treasury (currently around 4.39%) and Bank of America dividend ratings of 7, indicating stable or likely increasing payouts. Here are the standout opportunities from their buy-rated selections:
Sabra Health Care REIT (SBRA): Aging Demographics Tailwind
Sabra Health Care REIT offers the highest dividend yield on the list at 6.8% while being one of only two stocks showing positive year-to-date performance, up approximately 2%. The company focuses on skilled nursing and transitional care facilities, senior housing, behavioral health facilities, and specialty hospitals.
The investment thesis benefits from powerful demographic trends. The U.S. population aged 65 and older is expected to grow from 17% in 2020 to about 21% by 2030, according to Census Bureau data, with continued growth projected through 2060. This aging population directly supports demand for Sabra’s healthcare real estate portfolio.
In the most recent quarter, Sabra’s normalized funds from operations (FFO) came in at 35 cents per share, just one cent short of the FactSet consensus estimate of 36 cents. However, the company’s revenue of $183.5 million exceeded analyst expectations of $178.4 million, demonstrating solid operational performance despite the modest earnings miss.
Northern Oil and Gas (NOG): Energy Income with Production Growth
Northern Oil and Gas stands out with a 6.4% dividend yield, though the stock has faced significant pressure, falling approximately 24% year-to-date. The company operates as a non-operator in the acquisition, exploration, and development of oil and natural gas properties.
Despite the challenging stock performance, the company’s operational metrics remain strong. First-quarter adjusted earnings and revenue both exceeded analyst expectations. Notably, Northern Oil and Gas reported a 13% increase in barrel of oil equivalent (BOE) production compared to the first quarter of 2024, indicating growing operational efficiency and output.
The significant year-to-date decline may reflect broader energy sector headwinds and tariff-related concerns, but the combination of solid operational performance and attractive yield could appeal to income investors willing to accept energy sector volatility.
Ryman Hospitality Properties (RHP): Conference Center Specialist
Ryman Hospitality Properties offers a 4.8% dividend yield and has declined nearly 8% year-to-date. The company operates upscale convention center resorts, including the notable Gaylord Opryland Resort & Convention Center.
What distinguishes Ryman from typical hotel REITs is its conference center focus. According to investor Jenny Harrington of Gilman Hill Asset Management, “They have five of the top 10 largest non-gaming conference centers, and so they get lumped in with the hotel REITs. But their dynamics are completely different.”
The business model provides significant visibility and stability. Conference center bookings typically extend two to five years in advance, and the company maintains substantial cancellation fees, creating predictable revenue streams less susceptible to short-term hospitality market fluctuations.
Ryman’s recent financial performance exceeded expectations. First-quarter adjusted funds from operations reached $2.08 per share versus analyst expectations of $1.68, while revenue of $587.3 million substantially beat the $548.4 million consensus estimate.
NorthWestern Energy (NWE): Utility Stability
NorthWestern Energy provides the most defensive positioning with its 5% dividend yield and minimal year-to-date decline of approximately 1%. As a utility company, it offers the stability typically associated with regulated operations and essential services.
In April, the company reported first-quarter adjusted earnings that beat analyst expectations, though revenue came in below Street estimates. This mixed performance reflects the typical utility trade-off between earnings predictability and growth potential.
For investors seeking stable income with minimal volatility, NorthWestern Energy’s defensive characteristics and 5% yield provide an alternative to more volatile sectors while still offering yields above the current 10-year Treasury rate.
Additional Opportunities
Bank of America’s screen also identified several other compelling opportunities:
- HA Sustainable Infrastructure Capital (HASI): 6.7% yield, down 6.6% year-to-date
- Kite Realty Group (KRG): 4.9% yield, down 12.68% year-to-date
- Kodiak Gas Services (KGS): 4.9% yield, down 11.78% year-to-date
These companies round out the bank’s high-conviction small-cap dividend selections, each offering yields significantly above current Treasury rates while maintaining Bank of America’s highest dividend stability ratings.
As Hall noted, “Cash return to shareholders has been a historically outperforming style within small caps in both ‘Downturn’ and ‘Recovery’ regimes” – the two phases the market has been alternating between over the past two years. For investors willing to accept small-cap volatility, these dividend-focused opportunities offer both income and potential capital appreciation as market conditions improve.
