Many Happy Returns from These Small-Cap Dividend Growers

 | Dec 05, 2016 | 10:00 AM EST
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It's been quite a while since I published an update on my Small-Cap Dividend Growers tracking portfolio launched early in 2016. The premise for this screen was my belief that rising dividends can represent more than just cash returned to shareholders; they also can signal a company's health and a confident management team. Unlike earnings, companies can't manipulate dividends, nor can they "fake" dividend hikes (for very long, anyway) for appearance sake. Raising dividends to the point that they're unsustainable can lead to a dividend cut -- rarely if ever a positive in shareholders' eyes.

I understand the argument that dividends can be a waste of capital, especially when you consider that they are taxed twice -- once at the corporate level and once at the shareholder level. However, the value to shareholders of seeing some cash returned to them via dividends is difficult to quantify.

The screen included the following criteria:

  • $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 names made the list, and that group is up an average of 27.7% since inception (1/6/2016) versus 20% for the Russell 2000 Index and 23% for the S&P Small-Cap Index. This has not been a bad experiment so far. However, one year is still a very short time frame, and I'd like to see this screen stress-tested over a longer market cycle, including a down market environment. 

All but three names -- American Equity Investment Life (AEL) (-7.8%), Computer Services (CSVI) (-1.3%), and Ensign Group (ENSG) (-0.6%) --are in positive territory. The biggest winners include Quaker Chemical (KWR) (+71%), Stock Yards Bancorp (SYBT) (+69.8%), Franklin Electric (FELE) (+58.9%), ABM Industries (ABM) (+58%), and Applied Industrial Technologies (AIT) (+51.4%).

Here are the rest, and how they've fared:

  • BancFirst Corp (BANF) (+44.1%)
  • Cardinal Financial (CFNL) (+43.9%)
  • Cass information Systems (CASS) (+35.9%)
  • Standard Motor Products (SMP) (+35.5%)
  • Tennant Corp (TNC) (+34%)
  • Atrion (ATRI) (+32.7%)
  • Aaron's (AAN) (+27.2%)
  • Badger Meter (BMI) (+26.3%)
  • Horace Mann Educators (HMN) (+24%)
  • Community Trust Bancorp (CTBI) (+23.3%)
  • Finish Line (FINL) (+20.5%)
  • Chesapeake Utilities (CPK) (+19.5%)
  • Gorman-Rupp (GRC) (+16%)
  • Scholastic Corp (SCHL) (+11.8%)
  • International Speedway (ISCA) (+9.6%)
  • Tri-Continental (TY) (+9.1%)
  • Infinity Property and Casualty (IPCC) (+5.7%)
  • Universal Corp (UVV) (+1%)

While I'll continue to track and monitor this portfolio, I'll also be constructing a new vintage for 2017. 

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