Top 4 Small-Cap Dividend Stocks to Invest in

Nov 8, 2021 09:57 AM ET
Top 4 Small-Cap Dividend Stocks to Invest in

In most cases, dividend stocks are often associated with large-cap companies that have been in business for decades. Indeed, most dividend aristocrats have a market capitalization of more than $20 billion.

However, beneath the surface, there are many high-quality small-cap dividend stocks that you could add to your portfolio. In this article, we will look at some of those companies. By small-caps, we will cover companies that have a market capitalization of less than $10 billion.

Lazard (LAZ)

Lazard is a relatively small but storeyed Wall Street company with a market capitalization of about $5.2 billion. The company is known for its “great men” who help to advise other companies on issues like capital markets and restructuring. It has offered these services for more than 170 years. 

Lazard offers its services in two broad segments. First, it offers services like M&A advisory, restructuring, sovereign advisory, equity and debt advisory, and shareholder advisory. 

Second, the company offers investment advisory services. In this, its services include global equities, multi-regional equities, fixed income, and emerging market equities. In this division, it has more than $250 billion in assets under management.

Lazard’s business has been growing. For one, global equities have jumped in the past twelve months as investors take advantage of low-interest rates and an easy money policy. This performance has benefited its investment division. At the same time, many companies have embraced corporate consolidation in a bid to grow. 

Lazard is a good and reliable small-cap dividend stock to invest in. It has a dividend yield of about 3.85%, which is above the S&P 500 average. It is also backed by a relatively secure dividend payout ratio of about 40%.

Virtu Financial (VIRT)

Virtu Financial is a financial services company that operates in an industry that has become a bit controversial lately. This controversy has seen its stock decline by about 1% between January 2021 and November. 

Virtu is one of the few companies that offer market-making solutions to investors. By this, the company provides solutions that enable trades to be executed. For example, when you place a trade on Robinhood, the company routes these orders through market makers.

The industry has been questioned by legislators because of the Wall Street Bets situation when stocks experienced substantial volatility. Some legislators sought to have market-making banned. This is unlikely to happen.

In addition to market-making, Virtu Financial offers other services like execution and corporate solutions. The company is a good small-cap dividend stock to invest in for several reasons. First, it has a growing market share in the industry. Second, the industry has substantial barriers to entry. 

Third, the company’s financial performance is doing well. In 2020, it generated more than $3.28 billion in revenue and a profit of more than $1.8 billion. Additionally, the focus on its market-making business has pushed the stock price lower, which is a good entry point. The company has a dividend yield of about 3.86% and a payout ratio of about 20%.

Ethan Allen Interiors (ETD)

Ethan Allen Interiors is a company that was established in 1932. It offers interior design products like furniture from its more than 300 locations and through its website. The company targets customers seeking high-end products. It has a market capitalization of more than $537 million. 

Ethan Allen Interiors has a dividend yield of about 5% and a payout ratio of about 35%. It offers a good investment for several reasons. First, the demand for interior design products has risen dramatically in the past few years. 

This, in turn, has led to a strong performance of the company as its revenue was relatively stable above $700 million before the pandemic. It dropped to about $589 million because of the pandemic. Therefore, the performance will likely bounce back. Analysts expect that the firm’s revenue will rise to above $700 million in 2022.

Second, Ethan Allen is a good investment because of its growing e-commerce business. E-commerce sales now account for more than 50% of its total income. Third, the company’s valuation is not all that expensive since it has a forward PE ratio of about 7, which is lower than the S&P 500 average.

Flower Foods (FLO)

Flower Foods is a relatively small company that is valued at over $5 billion. The company provides some of the best-known baked products in the US like Nature’s Own, Dave’s Killer Bread, Canyon Bakehouse, and Sunbeam Bread. It owns about 48 bakeries in 18 states and employs almost 10,000 people.

Flower Foods sells most of its products to large supermarkets like Walmart and Kroger. It sells the rest to mass merchandising stores, food service stores, and convenience stores. 

Flower Foods has a dividend yield of about 3.30% and a payout ratio of about 70%. It has been paying and growing a dividend for more than 75 years, making it more than a dividend king.

The company’s business took a hit during the Covid-19 pandemic as more people stayed at home. Still, the hit was not as bad as most analysts were expecting. The company was affected in the form of higher costs. Revenue rose from $4.12 billion in 2019 to over $4.38 billion in 2020. Higher costs made its profit decline by about $12 million.

Still, Flower Foods is expected to show some stable growth as the economy reopens, and its dividend growth is expected to hold steady. 

Summary

Many small-cap dividend stocks offer significant returns to their shareholders. This is primarily because many of them are not well-known and are followed by large institutional investors. In this article, we have looked at some of the best small-cap dividend stocks to invest in. 

Still, we have barely scratched the surface. Some of the other companies you can check are New Jersey Resources, Moelis, and MDC Holdings. A better alternative to investing in these stocks is to use ETFs that track these firms, like the WisdomTree SmallCap Dividend Fund (DES) and ProShares Russell 2000 Dividend Fund.


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