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Small-cap stocks have done very well this year. The return of the S&P SmallCap 600 index year-to-date is at 37.72%, while the return of the S&P 500 index during the same period is at 26.72%.

In my previous posts (here and here), I described the best S&P 500 and the best S&P MidCap 400 dividend stocks according to O'Neil principles. In this article, I describe the best small-cap dividend stocks which are included in the S&P SmallCap 600 index, according to the same principles.

A Ranking system sorts stocks from best to worst based on a set of weighted factors. Portfolio123 has a powerful ranking system which allows the user to create complex formulas according to many different criteria. They also have highly useful several groups of pre-built ranking systems; I used one of them, the "ONeil" in this article. The ranking system is based on investing principles of the well-known investor William O'Neil.

The "O'Neil" ranking system is quite complex, and it is taking into account many factors like; EPS growth, sales growth, industry EPS growth, market conditions, company quality and stock stability, as shown in the Portfolio123's chart below.

In order to find out how such a ranking formula would have performed during the last 15 years, I ran a back-test, which is available through the Portfolio123's screener. For the back-test, I took all the 7,014 stocks in the Portfolio123's database.

The back-test results are shown in the chart below. For the back-test, I divided the 7,014 companies into fifty groups according to their ranking. The chart clearly shows that the average annual return has a very significant positive correlation to the "ONeil" rank. This brings me to the conclusion that the ranking system is useful.

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After running the "O'Neil" ranking system on the companies which are included in the S&P SmallCap 600 index and pay a dividend with a higher than 1% yield, on November 28, I discovered the twenty best dividend stocks, which are shown in the chart below. In this article, I describe the three best stocks. In my opinion, these stocks can reward an investor a significant capital gain along with a solid dividend. I recommend readers use this list of stocks as a basis for further research. All the data for this article were taken from Yahoo Finance, Portfolio123 and finviz.com.

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HCI Group, Inc. (NYSE:HCI)

HCI Group, Inc., an insurance holding company, provides property and casualty insurance in Florida.

HCI Group has a very low debt (total debt to equity is only 0.24), and it has a very low trailing P/E of 9.10 and a very low forward P/E of 10.75. The price-to-cash ratio is extremely low at 1.96, and the price to free cash flow for the trailing 12 months is also very low at 5.30. The forward annual dividend yield is at 2.20%, and the payout ratio is only 13.40%.

The HCI stock price is 11.39% above its 20-day simple moving average, 17.77% above its 50-day simple moving average and 51.98% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

HCI Group has recorded strong revenue and EPS growth during the last year, the last three years and the last five years, as shown in the table below.

The tables below emphasize the HCI Group's superior growth rates, margins and return on capital parameters over the industry median, the sector median and the S&P 500 median.

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Most of HCI Group's stock valuation parameters have been better than its industry median, sector median and the S&P 500 median, as shown in the table below.

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Source: Portfolio123

On October 22, HCI Group announced that in an effort to distribute more profit among shareholders, the board of directors of HCI Group increased its dividend by 22.2%. The company will now pay a quarterly dividend of 27.50 cents per share, up from 22.50 cents paid on September 23, 2013.

On November 05, HCI Group reported its third-quarter financial results, which beat EPS expectations by $0.35. The company reported that income available to common stockholders in the third quarter of 2013 totaled $13.4 million or $1.13 diluted earnings per common share, compared with $2.8 million or $0.27 diluted earnings per common share in the third quarter of 2012.

HCI has recorded very strong revenue and EPS growth, and considering its compelling valuation metrics, and the fact that the stock is in an uptrend, HCI stock can move higher. Furthermore, the rich growing dividend represents a nice income.

Main risk to HCI stock is big losses in the event of severe hurricane storms.

HCI Dividend Chart

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Chart: finviz.com

Evercore Partners Inc. (NYSE:EVR)

Evercore Partners Inc. operates as an independent investment banking advisory firm.

Evercore Partners has a low debt (total debt to equity is only 0.44), and has a trailing P/E of 36.26 and a forward P/E of 19.90. The PEG ratio is at 1.81, and the average annual earnings growth estimates for the next five years is very high at 20%. The forward annual dividend yield is at 1.81%, and the payout ratio is only 49.2%.

The EVR stock price is 5.36% above its 20-day simple moving average, 8.87% above its 50-day simple moving average and 26.32% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

Evercore Partners has recorded strong revenue, EPS and dividend growth, during the last year, the last three years and the last five years, as shown in the charts below.

The table below emphasizes the Evercore Partners' superior growth rates over the industry median, the sector median and the S&P 500 median.

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On October 23, Evercore Partners reported its third-quarter financial results, which beat EPS expectations by $0.09 and beat on revenues. The company reported that its U.S. GAAP net revenues were $188.0 million for the quarter ended September 30, 2013, compared to $153.0 million and $207.4 million for the quarters ended September 30, 2012 and June 30, 2013, respectively. U.S. GAAP net income attributable to Evercore Partners Inc. for the third quarter was $14.0 million, or $0.36 per share, compared to $5.3 million, or $0.17 per share, a year ago and $16.4 million, or $0.44 per share, last quarter.

Evercore Partners has recorded strong revenue, EPS and dividend growth, and considering its strong earnings growth prospects, and the fact that the stock is in an uptrend, EVR stock can move higher. Furthermore, the solid growing dividend represents a nice income.

EVR Dividend Chart

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Chart: finviz.com

Sturm, Ruger & Co. Inc. (NYSE:RGR)

Sturm, Ruger & Company, Inc. engages in the design, manufacture, and sale of firearms in the United States.

Sturm, Ruger & Co. has no debt at all, and it has a low trailing P/E of 14.62 and a forward P/E of 18.39. The forward annual dividend yield is at 3.01%, and the payout ratio is at 118.9%. The annual rate of dividend growth over the past three years was very high at 76.41%

The RGR stock price is 5.72% above its 20-day simple moving average, 14.04% above its 50-day simple moving average and 41.13% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

Sturm, Ruger & Co. has recorded strong revenue, EPS and dividend growth, during the last year, the last three years and the last five years, as shown in the table below.

The tables below emphasize the Sturm, Ruger & Co.'s superior growth rates, margins and return on capital parameters over the industry median, the sector median and the S&P 500 median.

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On November 05, Sturm, Ruger & Co. reported its third-quarter financial results, which missed EPS expectations by $0.02 and beat on revenues. The company reported net sales of $170.9 million and fully diluted earnings of $1.44 per share, compared with net sales of $118.2 million and fully diluted earnings of 88¢ per share in the third quarter of 2012.

In the report, the company also announced that its Board of Directors declared a dividend of 58¢ per share for the third quarter, for shareholders of record as of November 15, 2013, payable on November 29, 2013. This dividend varies every quarter because the Company pays a percent of earnings rather than a fixed amount per share. This dividend is approximately 40% of net income.

Sturm, Ruger & Co. has recorded strong revenue, EPS and dividend growth, and considering the fact that the stock is in an uptrend, RGR stock can move higher. Furthermore, the rich dividend represents a nice income.

Risks to the expected capital gain and to the high dividend payment include; a downturn in the U.S. economy and a change in the arms control policy.

RGR Dividend Chart

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Chart: finviz.com

Source: Best Small-Cap Dividend Stocks According To O'Neil Principles