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Dividend Investing For Small Cap Investors


Want to take advantage of the runup in small caps to find a great dividend stock? Here’s how. – PowerPoint PPT presentation

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Title: Dividend Investing For Small Cap Investors

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Welcome to Dividend Stocks Research Your premier
site for Rankings and Reviews of the best
dividends stocks around. For more info on
dividend stocks please visit our website
  • Hi, My name is Aaron and Im with Dividend Stocks
    Research, today were reviewing our recently
    published article

Dividend Investing For Small Cap Investors
Why bother with small cap stocks if youre a
dividend investor? Arent all the best dividend
stocks the SP 500 Dividend Aristocrats? Not
always. And heres why.
Youll definitely play it safe when you go with
one of the Aristocrats. Their track record of
paying growing dividends for at least 25 years is
a great clue to how the stock will perform in the
But the best stocks for dividends dont always
come with big names. And small cap stocks can
make a big difference in your portfolio.
Small cap stocks are just what they sound like.
Their capitalization, the worth of the company
based on the price of all the shares outstanding,
is fairly small when you stack these companies up
against the SP 500.
Were typically looking at a market cap between
300 million and 2 billion. Why does this
matter if youre looking for the best dividend
paying stocks?
Why You Should Look At Small Cap Dividend Stocks
For starters, you get a built in advantage over
the big institutional investors, the people who
buy and sell stocks for mutual funds and other
big pools.
Mutual funds are usually shackled with rules that
keep them from buying big chunks of a company.
They dont want to be too heavily invested in any
one company.
The fund managers are investing huge amounts of
money. This means the big money tends to go to
big companies so the fund wont own too much of
any one stock.
Even if a fund manager found a small cap stock he
fell in love with, and was comfortable owning a
big percentage of a small company, he would
typically need to file paperwork with the
Securities and Exchange Commission.
Filing with the SEC would make this trade public
before it even happened. Word would get around,
and the stock price would probably shoot up.
Its like the fund manager is forced to tip his
You and I dont have that problem. We can swoop
in quietly, buy a few shares, and make money
where the fund managers usually cant. Heres
something else thats nice about small cap
dividend stocks.
Because theyre not in the limelight, theyre not
traded much. Theyre thinly traded, and the low
trading volume gives dividend investors like us
some nice opportunities to pick up a bargain.
If you ever hear somebody use the term, thin
market, this is what theyre talking about. But
heres what can be best about the lack of
attention paid to the small caps by big
institutional traders...
Theres usually a disconnect between the price of
the stock and the true value of the company.This
disconnect gives you a chance to buy a stock
thats worth 20 for 15, even 10.
Why? Because the company is overlooked. Its
true value is ignored.
Small cap dividend stocks like these are just
like the terrific hole in the wall restaurant a
handful of locals in the know always go to, but
everyone else ignores. One more thing about
small caps.
Over the long haul, they perform pretty
well. Between 1927 and 2007, small caps were up
an average of 12 a year. Large caps were up an
average of 10 a year.
How To Find Great Small Cap Stocks For Dividend
The SP 500 has a baby brother. Its the SP
Small Cap 600, which was launched in 1994. Its
a rewarding place to go looking for some good
small cap stocks for dividend investing.
Another place to find good ones is on the Russell
2000 Small Cap Index. The Russell is the index
most often used to track the performance of small
cap stocks.
But lets drill into the SP 600 so you can see
how to find a great small cap dividend stock for
your portfolio. And lets start with the biggest
fish in this small pond.
One of the first things youll want to look for
is dividend stocks that keep raising dividends.
And when youve found some suspects, keep peeling
back the layers. Good deals on small caps are
out there. But theyre not always easy to find.
The Big Guns In Small Cap Dividend Stocks
Leading the list of the top 10 stocks on the
SP600 are 3 restaurant stocks... Jack in the
Box JACK, Buffalo Wild Wings BWLD, and Cracker
Barrel CBRL.
I would never buy a restaurant stock. Theyre
too risky. Public taste is too fickle, and they
have a way of crashing and burning. (You wont
find many Chipotles.) Remember Krispy Kreme
Donuts KKD?
In 2003, the stock was in the high 40s. Today,
Krispy Kreme is in the low 20s, and its still
overpriced. So right off the bat, well whittle
this list of 10 stocks down to 7.
Next, we need to see if any of these 7 survivors
pay dividends. 2 of them dont... Manhattan
Associates MANH, a tech company, and PAREXEL
PRXL, a health care firm, are tossed off our
This leaves us 5 small cap dividend stocks to
check out. 3 well blow off because the yields
are too low. MAXIMUS MMS pays a microscopic .27
yield. Why bother?
Its the same story with West Pharmaceutical
Services WST. It pays a .76 yield, and
Curtiss-Wright Corp CW pays a .72 yield.
So were left with two suspects in the lineup.
One is a company thats in the lawn care
business, and the other one is in real
estate. Toro Co. TTC has a modest 1.44 yield, a
low payout ratio of 29, and dividends have been
growing for 5 years.
You might know this company... it makes
lawnmowers and lawn care products, irrigation
systems, and professional grade equipment. If you
play golf, you probably know Toro. Its been
around forever. (Actually since 1914.)
The real estate outfit that made our cut has only
been around since 1997.EPR Properties EPRis a
Real Estate Investment Trust, a REIT. A REIT is
just like a stock.
But instead of owning factories and laboratories,
it owns real estate investments.By law, it needs
to pay out most of its profits in dividends. And
REITs often focus on investing in one kind of
real estate.
Some might invest in high-end hotels, others
invest in strip centers, some others in office
buildings. EPR Properties invests in megaplex
movie theatres and entertainment retail
centers.For the past 5 years, its been shrugging
off setbacks for a nice runup.
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It pays a 5.88 yield and dividends have been
growing for the past 4 years. So thats how to
make dividend investing in small cap stocks
profitable. Put some suspects in a lineup, and
get rid of the ones that dont make the cut.
Your Next Step For Dividend Investing In Small
Cap Stocks
Put together your own lineup. Go into the SP
Small Cap 600. Check out the Russell 2000 Small
Cap Index. Look for healthy, reasonable yield,
but dont chase yield. Make sure you have a
decent P/E ratio.
Shake down the balance sheet, the management, and
the future prospects of the business. For
If youre convinced that people are going to cut
back on going to the movies, EPR Properties
probably comes off your lineup of small cap
suspects. Thats how you find the best small cap
dividend stocks.
And remember... because youre investing in small
caps, youre in a great position to rack up some
nice capital gains with an increase in the stock
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