My Portfolio of Small-Cap Dividend Stocks Isn't Exactly Killing It

 | Mar 08, 2017 | 11:00 AM EST
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It has been just over two months since its Jan. 4 inception, but my 2017 Small-Cap Dividend Growers Portfolio is struggling early on, down 3.2%. That is horrific compared to the S&P 500 (up 4.3%) and Dow Jones Industrial Average (up 5%), but as you dig further down the market cap scope, it is a slightly different story.

The Russell 2000 and Russell Microcap Indexes, up 0.9% and down 2.1%, respectively, tell the tale of a market rally that is not very broad-based as smaller names generally are not participating in it. Indeed, if you dig further, you find that the value components of each Index -- the Russell 2000 Value and Russell Microcap Value -- are in negative territory, down 1.1% and 3.1%, respectively.

The "rising tide" that we are experiencing is not lifting all boats despite what the talking heads are telling the population at large on the evening news as the Dow has been hitting record highs. That's par for the course given the run that smaller names have had the past few years and just makes things more interesting and challenging if you fish within that pond.

Therefore, it is not a huge surprise that just nine of the 25 names in the 2017 Small-Cap Dividend Growers Portfolio are in positive territory so far. By way of reminder, the screening criteria are as follows:

  • $500 million to $2 billion in market capitalization
  • Dividend increases in at least each of the past five years
  • Long-term debt-to-equity ratios below 50%
  • Dividend-payout ratios below 50% for the trailing 12 months and last two fiscal years

"Winners" so far, if you can call them that given their muted performance, include Sandy Spring Bancorp (SASR) , up 8.5%; Primoris Services (PRIM) , up 7.6%; 1st Source (SRCE) , up 5.6%; Chesapeake Utilities (CPK) , up 5.3%; and Franklin Electric (FELE) , up 5.3%.

The "loser" list is longer and more extreme and includes Ensign Group (ENSG) , down 17.4%; Cass Information Systems (CASS) , down 12.1%; Standard Motor Products (SMP) , down 11.3%; FBL Financial Group (FFG) , down 10.2%; Stock Yards Bancorp SYBT, down 8.1%; Independent Bancorp INDB, down 7.5%, Community Trust (CTBI) , down 7.2%; EMC Insurance Group (EMCI) , down 6.9%; WesBanco (WSBC) , down 6.8%; and Atrion (ATRI) , down 5.9%.

Where we go from here should be an interesting ride. Despite my deep-value leanings, I've never been a "doomsdayer." However, I would not be at all shocked if the divergence in performance between small value and the broader markets grew wider. Indeed, should the broad markets pullback, the damage to small value, especially lower-quality names, could be severe. It even might create some opportunity that we have not seen in quite some time.

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