Most of the time when we think of dividend stocks we gravitate to traditional dividend paying sectors such as Utilities or Consumer Staple stocks like General Mills (NYSE: GIS). The income moniker also conjures up traditional blue chip buy and hold stocks like Microsoft (NYSE: MSFT). Rarely, however, do investors focus on and target small cap companies for dividend income. This is unfortunate as, thanks to the recent bear market in small caps as well as real estate investment trusts, there are some good bargains to be had in overlooked areas of the market right now.

As my regular readers know I am very optimistic about the lodging REIT space right now as many quality names in the sector are down some 25% to 35% from highs made last summer. Although RevPAR (Revenue per available room) is slowing somewhat, growth should still be solid both in 2016 and 2017. Given that the ten-year treasury yield is below two percent, the yields and valuations in this space are very attractive right now. We have recently added both Chatham Lodging Trust (NASDAQ: CLDT) and Diamondrock Hospitality (NYSE: DRH) to our 20 stock Small Cap Gems portfolio. Both are cheap and yield between 5.25% and 6.5%. M&A activity might pick up in the space as well. Just this week, China’s Anbang Insurance Group has agreed to acquire Strategic Hotels & Resorts for $6.5 billion, as the owner of New York’s iconic Waldorf Astoria further expands its U.S. hotel portfolio. Blackstone had just taken Strategic private for $6 billion three months ago.

Pebblebrook Hotel Trust (NYSE: PEB) is another lodging REIT I have added recently to my own income portfolio. The stock is down some 40% from its 52-week highs and appears to have great value at its current level of around $28.00 a share. Its market capitalization is right around $2 billion.

The company was incorporated at a very opportune time, December 2009, to pick up real estate assets for significantly below their replacement value after the financial crisis. PebbleBrook concentrates on properties located in or near urban markets in major United States gateway cities. Most of its hotels are on the East or West Coast. The company owns 31 hotels outright and has ownership interests in six more through joint ventures accounting for some 8,300 rooms overall. The stock has been punished unfairly on concerns that overseas travel will curtail thanks to a strong dollar and tepid worldwide economic activity.

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