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Like most investors interested in dividend growth stocks we have tended to limit our focus to high-quality large-cap dividend payers. However, when reading the comments on an article "link here" posted by Low Sweat Investing, a zealous supporter of dividend growth investing, a commenter made a suggestion that tweaked my interest. The following is a quote excerpt:

"Thanks for the reply. So many DG articles reference the same large cap investments. I was pleased that you mentioned a few "small cap rockets". I think most DG investors prefer the less bumpy ride of large cap equities but an article or two on some more small cap value DG stocks could be quite beneficial. Just a thought."

Therefore, I went to our F.A.S.T. Graphs™ screener tool and ran a small cap search looking for high-yield alternatives to the traditional, stodgy old, large-cap dividend payers. What I found was interesting to say the least. My bias regarding the nature of small-caps had me expecting to find a group of stocks with low dividend yields and above-average growth rates.

Instead, what I found was a group of high-yield, high-growth small-caps that I dubbed the "crazy eight." What I found crazy about this group was that they offered above-average dividend yields and above-average estimated future earnings growth. And, thanks to valuations that were reasonable to low relative to expected earnings growth, each of these eight offer high future total return potential. That's, of course, assuming that the consensus five-year earnings estimates are reasonably accurate.

Small-Cap Portfolio Review Ranked by Dividend Yield

The following portfolio review lists these "crazy eight" small caps in yield order; highest to lowest. The statistical attributes listed on the table paints a very interesting picture. For example, an equal amount of investment in each of these eight small caps would generate an average dividend yield in excess of 7.25%. Furthermore, based on each company being capitalized at valuations relative to expected earnings growth, the intermediate term opportunity for profit and increasing income appears very strong. However, as I have often pointed out before, statistical representations can be misleading. The devil is always in the details.

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What We Screened For

Utilizing the screening function of our fundamentals analyzer software tool, our graphs, our primary screen searched for small-cap companies that paid dividends and had debt below 50% of capital. Then we further refined our search by reviewing each individual our graphs that our search generated. Here we culled nontraditional operating businesses that were already largely recognized and followed such as REIT’s and MLP’s because we were searching for a new and different option for the dividend growth investor.

This final cut of eight is comprised of an unusual group of companies from all over the world. The list includes Canadian dividend income funds that were forced to convert into corporate structures because of changes in Canadian tax laws. As previously stated, there is much more due diligence required before a strong investment opinion on either direction is formed. However, being able to review a company from the perspective of fundamentals correlated to stock prices is a great advantage that our powerful our graphs research tool provides. As you review each of the individual graphs and charts below, note how quickly you are able to form an opinion of each company's historical and future profitability.

On the historical graphs, the orange line is the earnings justified valuation line, the green shaded area represents earnings and the light blue shaded area shows dividends paid out of those earnings and stacked on top for visual perspective and to illustrate the extra benefit that dividends provide. The black line represents monthly closing stock prices. The performance chart calculates the performance to include dividends associated with each historical graph, and compares it to the S&P 500.

It's important to note that this is a preliminary look at each of these companies based on cursory research. A brief description was copied from Google Finance in order to provide the reader an introduction to the company's businesses. Since this article is about dividend growth stocks, a brief commentary on the dividend policy of each company is provided between the historical our graphs and the associated performance chart. This information was gleaned either from press releases or from each individual company's website, and is offered to provide a brief perspective on each company's future dividend paying potential.

Eight Small-Cap High-Yield Dividend Paying Stocks

compass Diversified Holdings (NYSE:CODI)

"Compass Diversified Holdings (the Trust) acquires controlling interests in and actively manages businesses. The Trust’s manager is compass Group Management LLC. As of December 31, 2009, the company had six business segments: compass AC Holdings Inc. (ACI or Advanced Circuits), American Furniture Manufacturing, Inc. (AFM or American Furniture), Anodyne Medical Device, Inc. (Anodyne), Fox Factory, Inc. (Fox) HALO Branded Solutions, Inc. and CBS Personnel Holdings, Inc. (CBS or CBS Personnel). In March 2010, the company announced that its subsidiary, Advanced Circuits, acquired Circuit Express, Inc. In April 2010, the company acquired Liberty Safe and Security Products, Inc.”

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"The company's board of directors intends to declare and pay regular quarterly cash distributions.”

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Davis & Henderson (OTC:DHIFF)

"Davis + Henderson Corporation, formerly Davis + Henderson Income Fund, is a solutions provider to the financial services marketplace. It provides programs, technology products and technology-based business services to customers who offer chequing accounts, credit card accounts, and personal, commercial and other lending and leasing products. It offers products, such as programs to the chequing and credit card accounts, which includes IDefence, BizAssist and eSwitch programs; credit lifecycle management solutions, which consists of retail lending, mortgages, small business lending, commercial lending, equipment finance and real estate services, and business services, which includes lien search and registration services, lending administration and contact center services. In July 2009, it acquired Resolve Business Outsourcing Income Fund. On January 1, 2011, it announced that it has completed its conversion from an income trust to a corporation. In January 2011, it acquired ASSET Inc.”

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"TORONTO, Jan. 19, 2011 (Canada NewsWire via COMTEX) — Davis + Henderson Corporation ("D+H", "Davis + Henderson" or the "Corporation") completed its conversion from an income trust to a corporation on January 1, 2011 and today announced the timing of dividend declarations and details on initial dividend payments (based on its stated intention to pay dividends in 2011 at an annualized rate of $1.20 per share).

D+H intends to declare dividends coincident with the release of its quarterly financial results, which are generally published 4-5 weeks after calendar quarter ends. The payment date on declared dividends will be at the end of the month following the month in which the dividend is declared. Specifically, in the first quarter of 2011, the announcement date is expected to be May 10, 2011 and the payment date is expected to be the end of June, 2011.

In advance of that date, D+H intends to declare a special dividend of $0.15 per share coincident with the release of its financial results for the fourth quarter of 2010, which is expected to be in early March, 2011. The special dividend payment date is expected to be the end of March, 2011.

The first regular quarterly dividend of $0.30 per share (equivalent to $1.20 per share annualized) is expected to be declared in May, 2011 and paid in June, 2011. The next regular quarterly dividend is expected to be declared in August, 2011 and paid in September, 2011 and the last regular quarterly dividend for the year is expected to be declared in November, 2011 and paid in December, 2011.”

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Futuremed Healthcare Products Corp. (OTC:FMDHF)

"Futuremed Healthcare Products Corporation is a Canada-based Health Care supplier for Long Term Care Homes. The company’s product range is suitable for Physicians' offices, Home Care and Retirement Sectors. It is distributor of consumable nursing home supplies and specialized furniture and equipment to long-term care facilities sector.”

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"Thursday, 10 Mar 2011 05:30pm EST

Futuremed Healthcare Products Corporation announced that the board of directors declared a quarterly dividend of $0.16875 per common share to be paid on April 20, 2011 to shareholders of record on March 31, 2011.”

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"THL Credit, Inc. is a non-diversified, closed-end management investment company. The company operates as a business development company. The company’s investment objective is to generate both current income and capital appreciation, primarily through the origination of privately negotiated investments in debt and equity securities in middle market companies. It invests primarily in private subordinated debt, or mezzanine debt, which in many cases includes an associated equity component, such as warrants, preferred stock or other similar securities. In certain instances, the company will also make direct equity investments. It defines middle market companies to mean both public and privately held companies with annual revenues of between $25 million and $500 million. On April 20, 2010, the company purchased the Initial Portfolio Assets from THL Credit Opportunities, an affiliated fund. The company will be managed by its investment advisor and administrator, THL Credit Advisors LLC.”

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"BOSTON, May 9, 2011 (GLOBE NEWSWIRE) -- THL Credit, Inc., a middle market capital specialist, today announced financial results for its fiscal first quarter ended March 31, 2011. Additionally, THL Credit announced that its board of directors has declared its second fiscal quarter 2011 dividend of $0.25 per share, payable on June 30, 2011, to stockholders of record as of June 15, 2011.”

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United Online Inc. (NASDAQ:UNTD)

"United Online, Inc. is a provider of consumer products and services over the Internet. The company’s offerings feature brands, including FTD Group, Inc., Interflora, Classmates, NetZero, Inc. and, Inc. UOL operates its business in three segments. FTD, classmates media and communications. FTD offers floral and related products and services for consumers, retail florists and other retail locations. Classmates Media offers online social networking and online loyalty marketing services. Communications offers Internet access, e-mail, Internet security and Web hosting services."

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"WOODLAND HILLS, Calif.--(BUSINESS WIRE)-- United Online, Inc. a leading provider of consumer products and services over the Internet, today announced that its board of directors has declared a quarterly cash dividend of $0.10 per share.

The dividend is payable on May 31, 2011 to shareholders of record on May 12, 2011. This marks the 25th consecutive quarter that United Online will have paid a cash dividend to its shareholders. The payment of future dividends is discretionary and will be subject to determination by the board of directors each quarter following its review of the company's financial performance and other factors."

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BGC Partners, Inc. (NASDAQ:BGCP)

"BGC Partners, Inc. is a global financial intermediary to the financial markets specializing in the brokering of a range of financial products, including fixed income securities, interest rate swaps, foreign exchange, equities, equity derivatives, credit derivatives, commodities, futures, structured products and other instruments. It also provides a range of services, including trade execution, broker-dealer services, clearing, processing, information, and other back office services, to a range of financial and non-financial institutions. Through its eSpeed and BGCantor Market Data brands, the company also offers financial technology solutions, market data, and analytics related to select financial instruments and markets. In June 2009, the company acquired Liquidez Distribuidora de Titulos e Valores Mobiliarios Ltda. (Liquidez), a financial institution and interdealer broker with offices in Sao Paulo and Rio de Janeiro.”

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The dividends paid by BGC Partners, Inc. are ordinary dividends and are treated as such for tax purposes. Common stockholder’s will receive a Form 1099-DIV, not a Schedule K-1 for dividends they receive.”

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Ituran Location and Control (NASDAQ:ITRN)

"Ituran Location and Control Ltd. (Ituran) is mainly engaged in the area of location-based services, consisting of stolen vehicle recovery and tracking services. The company also provides wireless communication products used in connection with its location-based services and various other applications. Ituran provides its services and sells its products in Israel, Brazil, Argentina and the United States. In Brazil and Argentina, it also leases its products. The company generates its revenues from subscription fees paid for its location-based services, and from the sale and lease of its wireless communications products. During the year ended December 31, 2009, 75.4% of the company’s revenues were attributable to its location-based services. During 2009, 24.6% of the company’s revenues were attributable to the sale of its wireless communications products.”

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"Ituran Location and Control Ltd. today announced that the board of directors has approved the distribution of cash dividend in the amount of NIS 3.66 per share or 1.00 dollars per share, totaling approximately NIS 80.1 million or 21.9 million dollars. The dividend will be paid to shareholders of record on March 23, 2011. The company will pay dividend on April 6, 2011.

In its decision to approve the distribution of cash dividend, the board of directors examined whether the company meets the distribution criteria according to the Israeli law. The board of directors concluded that the abovementioned distribution will not undermine the company's ability to keep performing in its current course of business or future plans and to meet its undertakings when due. Retained earnings before the distribution was US$56.0 million and retained earnings will reach US$34.1 million, after the distribution. The board of directors emphasized that as at December 31, 2010 the company has cash balance in hand of US$60.9 million. As at December 31, 2010, the company's current assets (excluding cash, cash equivalent, deposit in trust and investments in securities) are in the sum of US$67.3 million and current liabilities in the sum of US$36 million."

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Petmed Express Inc. (NASDAQ:PETS)

"PetMed Express, Inc. and its subsidiaries, doing business as 1-800-PetMeds, is a pet pharmacy. The company markets prescription and non-prescription pet medications, and other health products for dogs, cats, and horses direct to the consumer. The company markets its products through national television, online, and direct mail/print advertising campaigns. PetMed offers a line of products for dogs, cats and horses. As of March 31, 2010, its product line contains approximately 750 stock keeping units (skus). These products include brands of medication, such as Frontline Plus, K9 Advantix, Advantage, Heartgard Plus, Sentinel, Interceptor, Program, Revolution, Deramaxx and Rimadyl. PetMed’s product line provides customers with a variety of selections across the health categories for dogs, cats and horses.”

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"Pompano Beach, Florida, May 9, 2011 - PetMed Express, Inc. today announced that its board of directors declared a quarterly dividend of $0.125 per share on its common stock. The dividend will be payable on May 27, 2011, to shareholders of record at the close of business on May 16, 2011. The company intends to continue to pay regular quarterly dividends; however the declaration and payment of future dividends is discretionary and will be subject to a determination by the board of directors each quarter following its review of the company’s financial performance.”

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We found it interesting to leave our comfort zone of large high-quality blue-chip dividend paying stalwarts in search of yield. What we found was intriguing and somewhat surprising regarding small caps with such high yields and growth potential. Of course, the risk profile with this group, we called the "crazy eight," is orders of magnitude greater than with the blue chips. However, so is the yield and capital appreciation potential greater as well.

At this point we're not sure we would ever invest in any of them, but we are looking forward to conducting a more comprehensive research effort. Although, it is a refreshing change from the norm, as many of these companies offer intriguing business models, a more comprehensive research effort is mandatory before an informed decision on any of them can be made.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.