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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 37.95%, while the one year return of the index is at 37.62%. This is compared to16.48% the average annual return for the last three years and an average annual return of 20.33% for the last five years.


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The Sharpe ratio, introduced by William F. Sharpe from Stanford University in 1966, is a way to examine the performance of an investment by adjusting for its risk. In my previous posts (here and here), I described the best S&P 500 and the best S&P MidCap 400 dividend stocks based on their reward to risk ratio. 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.

I used the Portfolio123's powerful screener to rank all the S&P SmallCap 600 index stocks, which pay a dividend with a higher than 1% yield and have a payout ratio less than 100%, according to their Sharpe ratio.

The tables below show the best twenty S&P SmallCap 600 stocks, most of them commercial banks, according to this concept. In this article, I describe the first five stocks. In my opinion, these stocks can reward an investor a capital gain along with an income. I recommend readers to 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, on December 22.


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Glacier Bancorp Inc. (NASDAQ:GBCI)

Glacier Bancorp, Inc. operates as holding company for Glacier Bank, which provides commercial banking services to individuals, small to medium-sized businesses, community organizations, and public entities in Montana, Idaho, Wyoming, Colorado, Utah, and Washington.


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Source: Investor Presentation December 2013

Glacier Bancorp has a trailing P/E of 24.06 and a forward P/E of 19.30. The price to free cash flow for the trailing 12 months is very low at 8.72, and the average annual earnings growth estimates for the next five years is quite high at 10%. The forward annual dividend yield is at 2.14%, and the payout ratio is only 45.1%. The annual rate of dividend growth over the past three years was at 3.72%, and over the past five years was at 2.21%.

The GBCI stock price is 2.41% above its 20-day simple moving average, 6.63% above its 50-day simple moving average and 30.66% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

Glacier Bancorp has recorded strong EPS and dividend growth and negative revenue growth during the last year and the last three years, as shown in the charts below.


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Source: Investor Presentation December 2013

Glacier Bancorp's margins have been better than its industry median, sector median and the S&P 500 index, as shown in the table below.


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Source: Portfolio123

On October 24, Glacier Bancorp reported its latest quarter financial results, which beat EPS expectations by $0.02.

Quarter Highlights

  • All time record net income for the current quarter of $25.6 million, an increase of 32 percent from the prior year third quarter net income of $19.4 million.
  • Current quarter diluted earnings per share of $0.35, an increase of 30 percent from the prior year third quarter diluted earnings per share of $0.27.
  • Completed the acquisition of North Cascades Bancshares, Inc., and its subsidiary, North Cascades National Bank in Chelan, Washington.
  • Excluding the acquisition, the loan portfolio increased $112 million, or 12 percent annualized.
  • Current quarter net interest margin, on a tax-equivalent basis, of 3.56 percent, an increase of 26 basis points from the prior quarter net interest margin of 3.30 percent.
  • Interest income for the current quarter of $69.5 million, an increase of 12 percent from the prior quarter interest income of $62.2 million.
  • Service charges and other fee income of $13.7 million, an increase of 16 percent from the prior quarter service charges and other fee income of $11.8 million.

Glacier Bancorp has recorded EPS and dividend growth and considering its good earnings growth prospects and the fact that the stock is in an uptrend, GBCI stock can move higher. Furthermore, the rich dividend represents a nice income.

Risks to the expected capital gain and to the dividend payment include a downturn in the U.S. economy, and the company's huge debt of $1.42 billion.

GBCI Dividend Chart


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Chart: finviz.com

Community Bank System Inc. (NYSE:CBU)

Community Bank System, Inc. operates as the bank holding company for Community Bank, N.A. that provides banking and financial services to retail, commercial, and municipal customers.


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Source: October 2013 Investor Presentation

Community Bank System has a trailing P/E of 19.32 and a forward P/E of 18.29. The price to book value is at 1.81, and the average annual earnings growth estimates for the next five years is quite high at 9.90%. The forward annual dividend yield is at 2.87%, and the payout ratio is at 52.2%. The annual rate of dividend growth over the past three years was at 5.82%, and over the past five years was at 5.10%.

The CBU stock price is 2.80% above its 20-day simple moving average, 6.15% above its 50-day simple moving average and 21.19% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

Community Bank has recorded EPS, revenue and dividend growth, during the last year, the last three years and the last five years, as shown in the table below.

Community Bank's margins have been better than its industry median, sector median and the S&P 500 index, as shown in the table below.


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On October 22, Community Bank reported its third-quarter financial results, which beat EPS expectations by $0.02. The company reported net income of $22.0 million for third quarter 2013, compared with $18.4 million for the third quarter of 2012. Diluted earnings per share were $0.54 for the third quarter of 2013, versus $0.46 in the prior year third quarter, which included eight cents per share of acquisition expenses. The Company reported earnings of $63.4 million ($1.56 per share) for the first nine months of 2013, an increase of $5.1 million, or 8.7%, compared to the equivalent prior year period.

Community Bank has recorded EPS, revenue and dividend growth, and considering its good earnings growth prospects and the fact that the stock is in an uptrend, CBU stock can move higher. Furthermore, the rich growing dividend represents a nice income.

CBU Dividend Chart


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Chart: finviz.com

G&K Services Inc. (NASDAQ:GK)

G&K Services, Inc. provides branded uniform and facility services programs in the United States, Canada, Ireland, and the Dominican Republic.


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Source: GK Investor Presentation December 2013

G&K Services has a low debt (total debt to equity is only 0.38), and it has a trailing P/E of 25.71 and a forward P/E of 19.40. The price-to-sales ratio is at 1.34, and the average annual earnings growth estimates for the next five years is quite high at 12%. The forward annual dividend yield is at 1.71%, and the payout ratio is only 41.9%. The annual rate of dividend growth over the past three years was very high at 48.79%, and over the past five years was also very high at 36.84%.

The GK stock price is 6.57% above its 20-day simple moving average, 5.22% above its 50-day simple moving average and 21.25% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

G&K Services has recorded EPS, revenue and dividend growth, during the last three years, as shown in the table below.


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Source: GK Investor Presentation December 2013

G&K Services has returned value to its shareholders by share repurchases and by increasing dividend payments, as shown in the chart below.


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Source: GK Investor Presentation December 2013

On October 29 G&K Services reported its third-quarter financial results, which beat EPS expectations by $0.01 and was in-line on revenues. Revenue in the quarter grew by 3.1 percent to $229.3 million, up from $222.4 million in last year's first quarter, driven by growth in rental operations, partially offset by lower revenue from direct sales and a lower Canadian exchange rate. First quarter adjusted earnings per diluted share grew 8 percent to $0.67, up from $0.62 per diluted share in the prior year period. Adjusted earnings in the quarter excluded a $0.07 per share benefit from the previously announced change in estimated merchandise amortization lives and a $0.05 per share charge for an increase to the company's estimated multi-employer pension plan withdrawal liability Including these items, the company recorded net earnings per diluted share of $0.69.

G&K Services has recorded EPS, revenue and dividend growth, and considering its strong earnings growth prospects, and the fact that the stock is in an uptrend, GK stock can move higher. Furthermore, the solid strong growing dividend represents an income.

GK Dividend Chart


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Chart: finviz.com

CVB Financial Corp. (NASDAQ:CVBF)

CVB Financial Corp. operates as the bank holding company for Citizens Business Bank that provides various banking and trust services for small-and medium-sized businesses, professionals, and individuals.

CVB Financial has a trailing P/E of 19.27 and a forward P/E of 18.39. The price to free cash flow is at 24.68, and the average annual earnings growth estimates for the next five years is quite high at 10%. The forward annual dividend yield is at 2.36%, and the payout ratio is only 40.3%.

The CVBF stock price is 4.72% above its 20-day simple moving average, 11.79% above its 50-day simple moving average and 32.87% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

CVB Financial has recorded EPS and dividend growth and negative revenue growth, during the last year, the last three years and the last five years, as shown in the table below.

CVB Financial margins have been better than its industry median, sector median and the S&P 500 index, as shown in the table below.


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On October 23, CVB Financial reported its third-quarter financial results, which beat EPS expectations by $0.02.

Third-Quarter Highlights

  • Net earnings were $24.2 million for the third quarter of 2013, or $0.23 per diluted share.
  • Total loans and leases grew by $101.0 million for the quarter, or 3.02%.
  • Improved credit quality resulted in a $3.8 million reduction of the allowance for loan losses. The allowance for loan losses was $80.7 million at quarter-end, or 2.46% of total non-covered loans.
  • Noninterest bearing deposits totaled $2.54 billion, or 51.85% of total deposits.

In the report, Chris Myers, President and CEO, commented:

We achieved strong earnings for the third quarter and were particularly pleased with loan growth of roughly $100 million or 3%, quarter-over-quarter. Our new loan initiatives gained traction and our loan runoff moderated. Credit quality continued to show improvement allowing us to release an additional $3.8 million in loan loss reserves. In looking forward, we remain focused on organic expansion through the hiring and integration of banking teams. We will also seek to accelerate our growth through the acquisition of community banks in and adjacent to our existing geographic markets

CVB Financial has recorded EPS and dividend growth, and considering its strong earnings growth prospects, and the fact that the stock is in an uptrend, CVBF stock can move higher. Furthermore, the rich growing dividend represents an income.

CVBF Dividend Chart


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Chart: finviz.com

PacWest Bancorp (NASDAQ:PACW)

PacWest Bancorp operates as the bank holding company for Pacific Western Bank that provides commercial banking products and services to small to medium sized businesses, and the owners and employees of those businesses primarily in Southern California.

PacWest Bancorp has a very low debt (total debt to equity is only 0.17), and it has a trailing P/E of 27.05 and a forward P/E of 16.93. The price to free cash flow is at 27.4, and the average annual earnings growth estimates for the next five years is quite high at 10%. The forward annual dividend yield is at 2.40%, and the payout ratio is at 62.6%.

The PACW stock price is 0.41% above its 20-day simple moving average, 6.12% above its 50-day simple moving average and 27.42% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

PacWest Bancorp has recorded strong EPS and dividend growth and weak revenue growth during the last three years, as shown in the table below.

On October 23, PacWest Bancorp reported its third-quarter financial results, EPS was in-line with expectations.

Third Quarter 2013 Financial Highlights

  • Net Earnings of $24.2 Million or $0.53 Per Diluted Share
  • Net Interest Margin at 5.46%
  • Noncovered Loans and Leases Grow $34.2 Million
  • Credit Loss Reserve at 1.72% of Loans and Leases and 133% of Nonaccrual Loans and Leases (excludes purchased credit impaired loans)
  • Demand Deposits Increase $37.4 Million and Reach 43% of Total Deposits
  • Core Deposits Increase to 87% of Total Deposits

PacWest Bancorp has recorded EPS and dividend growth, and considering its strong earnings growth prospects, and the fact that the stock is in an uptrend, PACW stock can move higher. Furthermore, the rich growing dividend represents an income.

PACW Dividend Chart
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Chart: finviz.com

Source: Best Small-Cap Dividend Stocks Based On Reward To Risk Ratio