Last year's Small-Cap Dividend Growers tracking portfolio included 26 names that each met rather stringent criteria. With about one year under its belt, this equal-weighted portfolio is up 32.8% since inception. That performance, however, occurred in a very strong market environment in which the Russell 2000 and Russell Microcap Indexes were up 25.1% and 24.2%, respectively.
This year's portfolio may not have it so easy, but when you want to stress-test a stock screen, it is valuable to do so in different market environments. It is just as important to test a concept in down and sideways markets, perhaps even more so.
The year's screen included the following criteria, the very same as last year's:
- $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
Twenty-five names made the cut this year, and while there are many holdovers from last year, there are also several new names, including:
- FBL Financial (FFG)
- WesBanco (WSBC)
- Independent Bank (INDB)
- Stepan (SCL)
- Primoris Services (PRIM)
- 1st Source (SRCE)
- Sandy Spring Bancorp (SASR)
- S. Physical Therapy (USPH)
- Farmers and Merchants Bancorp (FMCB)
- EMC Insurance Group (EMCI)
Holdovers from last year include:
- Franklin Electric (FELE)
- Quaker Chemical (KWR)
- International Speedway (ISCA)
- BancFirst (BANF)
- Tennant (TNC)
- Standard Motor Products (SMP)
- Ensign Group (ENSG)
- Badger Meter (BMI)
- Cardinal Financial (CFNL)
- Chesapeake Utilities (CPK)
- Stock Yards Bancorp (SYBT)
- Atrion (ATRI)
- Community Trust Bancorp (CTBI)
- Gorman-Rupp (GRC)
- Cass information Systems (CASS)
This year's portfolio is even more skewed toward financials (banks and insurance) then last year's. That's perhaps not unexpected given those sectors penchant for increasing their dividends; however, it is also somewhat disappointing. I've never been a big follower of banking names, despite their value overtones. I've left that to the banking experts, such as Real Money's Tim Melvin. Nonetheless, it will be interesting to stress-test once again the notion that small-cap dividend growers can outperform their peers.
