• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / U.S. Equity

My 'Small-Cap Dividend-Growers Portfolio'

These 26 stocks offer reliable (and growing) quarterly payouts.
By JONATHAN HELLER
Jan 06, 2016 | 12:00 PM EST
Stocks quotes in this article: FINL, CPK, TNC, UVV, FELE

I've long been a believer that dividends represent more than just cash returned to shareholders. While companies can fool investors by "massaging" earnings or announcing stock buybacks and not following through, dividend payouts are hard to manipulate.

In my view, raising a dividend year in and year out is a good indication of not only a company's financial health, but also of a confident management team.

Firms can't "fake" dividend hikes, at least not for very long. Companies that raise payouts to the point of unsustainability risk having to eventually cut their dividends, which is rarely good for a stock. In a way, this creates a system of checks and balances.

But you can also make the argument that dividends are a waste of capital. After all, companies pay federal taxes on their income, then distribute a portion of their profits to shareholders who in turn pay even more tax on it.

Had the money stayed with the company, less capital would have flowed to the U.S. government in the form of taxes paid by shareholders. But of course, theory and practice quickly part ways when it comes to investors' attitude about having cash returned to them in the form of dividends.

I've run a stock screen each January for years that's designed to identify smaller companies with not only strong records of dividend growth, but that also appear to have the ability to continue raising payouts in the future. The level of yield isn't of great concern to me, as this "Small-Cap Dividend-Growers" screen isn't an income-generation strategy.

The search criteria that I employ include:

  • $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-six companies made the cut this year: Aaron's (AAN), ABM Industries (ABM), American Equity Investment Life (AEL), Applied Industrial Technologies (AIT), Atrion (ATRI), Badger Meter (BMI), BancFirst (BANF), Cardinal Financial (CFNL), Cass Information Systems (CASS), Chesapeake Utilities (CPK), Community Trust Bancorp (CTBI), Computer Services Inc. (CSVI), Ensign Group (ENSG), Finish Line (FINL), Franklin Electric (FELE), Gorman-Rupp (GRC), Horace Mann (HMN), Infinity Property and Casualty (IPCC), International Speedway (ISCA), Quaker Chemical (KWR), Scholastic (SCHL), Standard Motor Products (SMP), StockYards Bancorp (SYBT), Tennant (TNC), Tri-Continental (TY) and Universal (UVV).

There's a great deal of representation from insurance, banking and financial services, including AEL, BANF, CFNL, CTBI, HMN, IPCC, SYBT and TY. By contrast, Finish Line represents the only retailer to make the cut, although FINL has been showing on a few of my screens recently.

Another firm, tobacco company Universal, is a crossover from my "Double-Net Dividend Portfolio." The remaining 16 stocks in my Small-Cap Dividend-Growers Portfolio come from a hodge-podge of industries.

The group's average yield is about 2%, while the average market cap is just over $1 billion and the average dividend-payout ratio is 30% on a trailing-twelve-month basis. The constituent stocks are also light on debt, with an average long term debt-to-equity ratio of just 0.15.

This screen has worked fairly well in the past, but with all of the market volatility that I expect this year (not to mentioned a rising interest-rate environment), 2016 might be a real test for the strategy. I'll be benchmarking the portfolio against the Russell 2000 and S&P SmallCap 600 and following the 26 stocks' progress throughout 2016.

Stay tuned!

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Heller had no positions in the stocks mentioned.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider several equities mentioned in this column to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

TAGS: Investing | U.S. Equity

More from U.S. Equity

How I'm Approaching Stocks and Bonds After the Fed Minutes

Peter Tchir
May 26, 2022 12:19 PM EDT

I see three key takeaways from Wednesday's FOMC release.

The Bounce Is On: Here's What I've Been Buying

James "Rev Shark" DePorre
May 26, 2022 11:28 AM EDT

The big question now is how far can this run?

Is It Time to Put Money to Work?

Guy Ortmann
May 26, 2022 10:15 AM EDT

Two key indexes have come off their previous negative implications.

The Much-Anticipated Bear Market Bounce Is Starting

James "Rev Shark" DePorre
May 26, 2022 7:49 AM EDT

The best indicator of a tradable bounce is when stocks stop going down on bad news.

Fed Minutes, Rate Hike Odds, Economic Decay, Apple Production, Trading Costco

Stephen Guilfoyle
May 26, 2022 7:16 AM EDT

This is a traders' market until it isn't.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 02:46 PM EDT STEPHEN GUILFOYLE

    We're Shedding Some of This Holding on Strength

    Check out the Stocks Under $10 portfolio here!
  • 11:33 AM EDT PETER TCHIR

    Thoughts Ahead of the Fed Minutes

    Recent economic and earnings issues are convincing...
  • 02:24 PM EDT PAUL PRICE

    An Interesting Chart

    I'm betting heavily that stocks will be way up aga...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login