Introduction
Dividends add a tremendous amount of confidence when looking for value companies. Small Cap Stocks are companies that are scaling up to be a mature business and many such companies begin to reward the shareholders with regular dividend. As the growth continues, well run small cap companies grow their dividends over time, adding to the compounding effect in the investor's portfolio. Great stocks invested at this phase and held on for long term can generate significant wealth for the investors.
Screen Details
This screen looks for small cap stocks between $30 Million and $2 Billion in market capitalization paying dividends. We want the dividend to be growing, looking back atleast 5 years, and the business fundamentals also improving so the company is likely to sustain dividend growth in the future. Screen criteria is as follows:
- Dividend Yield > 1.5% and < 3.75%
- Dividend 1 Year Change > 8%
- Dividend 3 Year Avg Growth > 8%
- Dividend 5 Year Avg Growth > 8%
- EPS 5 Year Avg Growth > 8%
- Payout Ratio < 40% and > 10%
- Sales 5 Year Avg Growth > 4%
The Screen Results
Stock | Company | Dividend Yield | div 5Yr Avg Growth | eps 5yr avg growth | Payout Ratio |
|---|---|---|---|---|---|
AGM | Federal Agricultural | 3.6% | 27.6% | 10.7% | 38.5% |
BOCH | Bank of Commerce Holdings | 1.8% | 14.9% | 14.9% | 29.8% |
CIVB | Civista Bancshares | 2.1% | 19.1% | 8.8% | 22.0% |
CWBC | Community West Bancshares | 1.8% | 14.9% | 32.2% | 19.9% |
FBNC | First Bancorp | 1.9% | 20.1% | 16.7% | 25.6% |
FXNC | First National | 2.6% | 32.0% | 29.4% | 24.3% |
GABC | German American Bancorp | 1.9% | 11.8% | 11.1% | 32.3% |
HBNC | Horizon Bancorp | 2.8% | 12.5% | 14.0% | 31.0% |
HWBK | Hawthorn Bancshares | 2.5% | 24.9% | 11.4% | 21.9% |
LKFN | Lakeland Financials | 2.0% | 15.8% | 13.8% | 36.3% |
MGRC | McGrath RentCorpo | 2.2% | 10.9% | 20.8% | 38.7% |
NRIM | Northrim Bancorp | 3.5% | 14.3% | 15.1% | 26.6% |
PFBC | Preferred Bank | 2.3% | 20.4% | 16.0% | 25.8% |
PKBK | Parke Bancorp | 3.2% | 27.3% | 20.9% | 26.1% |
RILY | B. Riley Financial | 2.0% | 75.5% | 67.6% | 14.7% |
SBFG | SB Financial Group | 2.4% | 13.8% | 10.1% | 20.4% |
SFBC | Sound Financial Bancorp | 1.7% | 17.8% | 13.7% | 17.3% |
Notes and Observations
Except for MGRC and RILY, every other stock in this screen is a regional bank. Banks could be interesting if we expect the interest rates to strengthen over time, however generally I stay out of banks as the financials are harder to analyze.
- MGRC: Valuations look okay and the company has 10+ years of dividend growth under its belt. Looking forward to reviewing this in detail as part of our dividend portfolio. The value proposition is borderline.
- RILY: Appears to have had a great few years as an investment bank/private/equity/wealth management/advisory conglomerate. The valuation looks good, liquidity is high and the payout ratio is small indicating further dividend increases are supportable (currently it has a streak of 2 years of increasing dividends). Disruptions in the economy creates opportunities for RILY so I would expect the next few years to be good for business. The stock recently joined S&P Small Cap index. I will be reviewing this further for either value or dividend portfolio.
Ending Note
Here we are coming at the valuation after we have screened for dividend growth. In practice, this may not give us the best value stocks, but it will certainly give us stocks that can create value from compounding dividends for long time (assuming the management continues their track record of growing dividends).