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Introduction

In previous articles I identified anchor stocks and utility stocks that dividend income portfolios need to invest in. There is another type of dividend income stock that should be owned in portfolios. You as an investor must identify and invest in not only dividend anchor stocks and utility stocks but also small-cap dividend growth stocks. These companies may have higher P/E ratios than either dividend anchor stocks or utilities. The higher P/E is reflective of growth potential. These stocks also most of the time have lower dividend yields. The yield growth rate is the more important factor for these stocks. These are companies that, if added to your portfolio, can significantly affect your long term wealth accumulation as well as income level. These stocks are essential to own if you want increasing levels of income and wealth. When looking for dividend growth stocks, there are a few questions that I like to answer.

  1. Does the company pay a dividend?
  2. Has it shown a history for increasing its dividend over time?
  3. Is the company showing increases in annual revenue?
  4. Is the company showing increases in annual EPS?
  5. Is the company showing increases in net income?
  6. Is the companies share price appreciating?

The answer to these questions will determine if we should purchase a stock for growth purposes. Many larger companies Like IBM find alternative ways to grow EPS without specifically growing revenues. In Growth stocks we want to see an accelerating business model supported by growing market share. Let us take a look at a few companies that fit into this dividend growth category.

Ingredion Incorporated (NYSE:INGR)

Profile: Ingredion Incorporated, together with its subsidiaries, engages in the manufacture and sale of starch and sweetener ingredients in North America, South America, the Asia Pacific, Europe, the Middle East, and Africa.

Comment: Agricultural companies are the backbone of the economy. Yes they can be very volatile at times, but this is true for many sectors of the economy closely tied to the weather. This is a small cap agricultural company that offers great growth potential. Below is the fundamental analysis performed on this stock.

  • Does the company pay a dividend?

INGR pays a quarterly dividend of $0.26. This is a current annual yield of 1.4%

  • Has it shown a history for increasing its dividend over time?

INGR has increased its dividend from $0.11 quarterly per share in 2008 to $0.26 quarterly per share in 2012. This is a 136% increase of its quarterly dividend payment over that time period.

  • Is the company showing increases in annual revenue?

INGR has increased its annual revenue to 6.22 billion in 2011 from 3.39 billion at the end of 2007. That is an increase of 83% over that time frame.

  • Is the company showing increases in annual EPS?

INGR has increased their earnings per share to $5.32 in 2011 from $2.59 in 2007. That is a 105% increase in EPS over that time frame.

  • Is the company showing increases in net income?

INGR's net income has increased to 416 million dollars in 2011 from 198 million dollars in 2007. That is a 110% increase in net income over that time frame.

  • Is the companies share price appreciating?

INGR's share price has increased to $66.07 per share on Jan 2, 2013 from $33.80 per share on Jan 2, 2008. That is a 95% increase in share price over that time frame

Steris Corp (NYSE:STE)

Profile: STERIS Corporation, together with its subsidiaries, develops, manufactures, and markets infection prevention, contamination control, microbial reduction, and surgical support products and services for healthcare, pharmaceutical, scientific, research, industrial, and governmental customers worldwide.

Comment: Healthcare is one of the fastest growing sectors in the world. This company manufactures many products that are essential in the practice of medicine. Below is the fundamental analysis performed on this stock.

  • Does the company pay a dividend?

STE pays a quarterly dividend of 0.19. This is a current annual yield of 1.9%

  • Has it shown a history for increasing its dividend over time?

STE has increased its dividend from $0.06 quarterly per share in 2008 to $0.19 quarterly per share in 2012. This is a 216% increase of its quarterly dividend payment over that time period.

  • Is the company showing increases in annual revenue?

STE has increased its annual revenue to 1.41 billion in 2012 from 1.27 billion at the end of 2008. That is an increase of 11% over that time frame.

  • Is the company showing increases in annual EPS?

STE has increased their earnings per share to $2.31 in 2012 from $1.20 in 2008. That is a 93% increase in EPS over that time frame.

  • Is the company showing increases in net income?

STE's net income has increased to 136 million dollars in 2012 from 77 million dollars in 2008. That is a 76% increase in net income over that time frame.

  • Is the companies share price appreciating?

STE's share price has increased to $37.73 per share on Jan 2, 2013 from $24.78 per share on Jan 2, 2008. That is a 52% increase in share price over that time frame.

Raymond James Financial Inc (NYSE:RJF)

Profile: Raymond James Financial, Inc., through its subsidiaries, engages in the underwriting, distribution, trading, and brokerage of equity and debt securities in the United States, Canada, and Europe.

Comment: The financial sectors of the economy tend to be dominated by larger more diverse companies. Its hard to find up and coming companies that are allowed to prosper by their larger competitors. This company has figured a way to do just that. Below is the fundamental analysis performed on this stock.

  • Does the company pay a dividend?

RJF pays a quarterly dividend of 0.14. This is a current annual yield of 1.2%

  • Has it shown a history for increasing its dividend over time?

RJF has increased its dividend from $0.11 quarterly per share in 2008 to $0.14 quarterly per share in 2012. This is a 27% increase of its quarterly dividend payment over that time period.

  • Is the company showing increases in annual revenue?

RJF has increased its annual revenue to 3.9 billion in 2012 from 3.2 billion at the end of 2008. That is an increase of 21% over that time frame.

  • Is the company showing increases in annual EPS?

RJF has increased their earnings per share to $2.20 in 2012 from $1.97 in 2008. That is a 11% increase in EPS over that time frame.

  • Is the company showing increases in net income?

RJF's net income has increased to 289 million dollars in 2012 from 235 million dollars in 2008. That is a 23% increase in net income over that time frame.

  • Is the companies share price appreciating?

RJF's share price has increased to $45.30 per share on Jan 2, 2013 from $28.09 per share on Jan 2, 2008. That is a 61% increase in share price over that time frame.

Sensient Technologies Corporation (NYSE:SXT)

Profile: Sensient Technologies Corporation and its subsidiaries engage in the manufacture and sale of colors, flavors, and fragrances worldwide. Its products include flavors, flavor enhancers, and bionutrients; fragrances and aroma chemicals; dehydrated vegetables and other food ingredients; natural and synthetic food and beverage colors; cosmetic and pharmaceutical colors and additives; and technical colors, inkjet colors and inks, and specialty dyes and pigments

Comment: As long as people eat they will want to eat good tasting food. This company manufactures food additives and flavor enhancers for a variety of products. Below is the fundamental analysis performed on this stock.

  • Does the company pay a dividend?

SXT pays a quarterly dividend of 0.22. This is a current annual yield of 2.3%

  • Has it shown a history for increasing its dividend over time?

SXT has increased its dividend from $0.18 quarterly per share in 2008 to $0.22 quarterly per share in 2012. This is a 22% increase of its quarterly dividend payment over that time period.

  • Is the company showing increases in annual revenue?

SXT has increased its annual revenue to 1.43 billion in 2011 from 1.18 billion at the end of 2007. That is an increase of 21% over that time frame.

  • Is the company showing increases in annual EPS?

SXT has increased their earnings per share to $2.41 in 2011 from $1.65 in 2007. That is a 46% increase in EPS over that time frame.

  • Is the company showing increases in net income?

SXT's net income has increased to 120 million dollars in 2011 from 77 million dollars in 2007. That is a 55% increase in net income over that time frame.

  • Is the companies share price appreciating?

SXT's share price has increased to $38.10 per share on Jan 2, 2013 from $26.52 per share on Jan 2, 2008. That is a 43% increase in share price over that time frame.

American States Water Co (NYSE:AWR)

Profile: American States Water Company, together with its subsidiaries, provides water, electric, and contracted services in the United States. It engages in the purchase, production, and distribution of water in 75 communities in 10 counties in California; and provides electric service to the City of Big Bear Lake and surrounding areas in San Bernardino County, California.

Comment: Generally utility companies are not considered as growth stocks but this utility has shown great ability to increase its revenue and earnings. Below is the fundamental analysis performed on this stock.

  • Does the company pay a dividend?

AWR pays a quarterly dividend of $0.355. This is a current annual yield of 2.8%

  • Has it shown a history for increasing its dividend over time?

AWR has increased its dividend from $0.25 quarterly per share in 2008 to $0.355 quarterly per share in 2012. This is a 42% increase of its quarterly dividend payment over that time period.

  • Is the company showing increases in annual revenue?

AWR has increased its annual revenue to 419.27 million in 2011 from 301.37 million at the end of 2007. That is an increase of 39% over that time frame.

  • Is the company showing increases in annual EPS?

AWR has increased their earnings per share to $2.31 in 2011 from $1.61 in 2007. That is a 43% increase in EPS over that time frame.

  • Is the company showing increases in net income?

AWR's net income has increased to 41 million dollars in 2011 from 28 million dollars in 2007. That is a 46% increase in net income over that time frame.

  • Is the companies share price appreciating?

AWR's share price has increased to $51.45 per share on Jan 2, 2013 from $34.52 per share on Jan 2, 2008. That is a 49% increase in share price over that time frame.

Summary

When analyzing small-cap dividend growth stocks remember that you are looking for more than income now. These small-cap companies may not excel in each of the questions that I use to analyze them. These companies only need to impress in a couple of these criteria to be worth consideration. Remember, you should be looking for income growth over time. The analysis above shows that companies can and do return value now, while still providing growth potential over time. Please reply in the comments section and let me know what other small-cap income growth stocks you are investing in.

Source: 5 Small Cap Dividend Growth Stocks For An Income Portfolio