The All Small-Cap Team (Part 4): 25 Small-Cap Dividend Stocks To Keep Your Eye On In 2014

Includes: GEL, HCSG, MDP, OMI, UGI
by: Parsimony Investment Research

Most DIY dividend investors focus their attention mainly on "blue-chip," large capitalization stocks like Wal-Mart (NYSE:WMT) and McDonald's (NYSE:MCD), but small capitalization stocks should not be ignored. While small-cap stocks are widely viewed as relatively higher risk investments, the risk-reward tradeoff of this segment can be very compelling for even the most conservative investors. Generally speaking, smaller companies tend to be less financially stable than larger firms, which often leads to higher price volatility. However, smaller companies are often able to increase their earnings at a faster clip and therefore have the potential to deliver greater capital appreciation (since stock prices are a function of earnings growth).

In fact, over the past 5 years (see chart below), small-cap stocks (Russell 2000) have outperformed large-cap stocks (S&P 500) by a decent margin (+159.7 vs. 129.7%).

Note that year-to-date, small-cap stocks are up almost 30% (vs. a 25% gain for the S&P 500).

Small-Cap Dividend Stocks For Your DIY Dividend Portfolio

While proven large-cap dividend payers should make up the bulk of your dividend portfolio, we recommend that investors also consider selectively mixing in some small-cap stocks as well.

That said, we recently scanned our entire dividend stock universe and came up with our current "All-Small-Cap" Team. This team is made up of the 25 small-cap dividend stocks with the highest Parsimony Ratings (that also meet the parameters below):

  • Stock Price > $10.00
  • Market Capitalization < $5 billion
  • 3-Month Avg. Volume > 100,000 shares
  • Dividend Yield > 2.5%
  • Parsimony Rating > 70

We will highlight each of these stocks over the course of a five-part series. Below is a schedule of the entire series. Please make sure to "follow" us so that you will be notified when each new article is published.

The All-Small-Cap Team: Second Team

Our 25 All-Small-Cap Team stocks have an average market cap of $2.5 billion and an average dividend yield of 4.5%. In addition, these stocks have an average beta of 0.85x (despite the higher volatility stereotype) and an average 5-year total return over 300%. This article highlights the 5 stocks that made our Second Team (stocks ranked #6-10). The tables below summarize some of the key data points that we analyze when ranking our dividend stocks.

#10 Owens & Minor (NYSE:OMI)

Owens & Minor provides distribution and logistics services to the Healthcare industry. OMI may not be on your radar, but it should be. As shown in the graph above, OMI has consistently increased its dividend at a compound annual rate of 15.3% over the past 10 years. This kind of chart is exactly what you want to see from your dividend stock. In addition, OMI has good ratings for Financial Stability (78) and Dividend Sustainability (73) and we expect this dividend trend to continue.

#9 Healthcare Services Group (NASDAQ:HCSG)

HCSG provides housekeeping, laundry, linen, facility maintenance and dietary services to nursing homes, retirement complexes, rehabilitation centers and hospitals. HCSG has increased its dividend at a compound annual rate of 11.6% over the past 5 years and delivered shareholders a 270% total return over this period. HCSG has now increased its dividend in 41 consecutive quarters and there is no reason to think that this trend will stop anytime soon.

#8 Meredith Corp. (NYSE:MDP)

Meredith, a leading media and marketing company, has paid a dividend for 66 consecutive years and increased it for 20 years straight. MDP has delivered shareholders a 344% total return over the past five years, and it has increased its dividend at a compound annual rate of 14.1% over that period. MDP has clearly been a great stock to own.

#7 Genesis Energy (NYSE:GEL)

Genesis Energy is a diversified midstream energy master limited partnership, and operations include pipeline transportation, refinery services and supply and logistics. GEL has increased its dividend at a compound annual rate of 10.5% over the past 5 years and delivered shareholders a whopping 816% total return over this period. GEL has now increased its quarterly distribution for 33 consecutive quarters.

#6 UGI Corp. (NYSE:UGI)

UGI is the sole General Partner and owns 26% of AmeriGas Partners (NYSE:APU), the nation's largest retail propane distributor. UGI has paid common dividends for 128 consecutive years and raised its dividend in each of the last 25 years (including a 6.9% compound annual growth rate over the past 10 years).


Selectively adding some well-researched small-cap stocks to your DIY Dividend Portfolio can offer both diversification and higher capital appreciation potential. Use this series as the starting point for your own due diligence.

Disclosure: I am long OMI, UGI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.