The All-Small-Cap Team (Part 3): 25 Small-Cap Dividend Stocks To Keep Your Eye On In 2014

Includes: CNL, OHI, TCAP, VR, WPC
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 5-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: Third 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 Third Team (stocks ranked #11-15). The tables below summarize some of the key data points that we analyze when ranking our dividend stocks.

#15 Omega Healthcare Investors (NYSE:OHI)

OHI is a real estate investment trust investing in and providing financing to the long-term care industry. The company has increased its dividend at a compound annual rate of 9.3% over the past 5 years and delivered shareholders a 245% total return over this period. OHI has a very attractive yield of 5.9% and we believe the stock would be a great addition to a long-term DIY Dividend Portfolio.

#14 W.P. Carey (NYSE:WPC)

WPC is a diversified real estate investment trust that invests in commercial properties that are generally triple-net leased to single corporate tenants including office, warehouse, industrial, logistics, retail, hotel, R&D, and self-storage properties. WPC has increased its dividend for 50 consecutive quarters...not too many dividend payors can say that! WPC has increased its dividend at a compound annual rate of 10.4% over the past 5 years and delivered shareholders a 332% total return over this period.

#13 Cleco Corp. (NYSE:CNL)

Cleco Corp. is an electric utility company operating primarily in Louisiana with a long and stable dividend track record. In fact, CNL has paid dividends to its shareholders since 1935. That said, up until 2010, CNL had not increased its dividend since 2002. However, the company seems to have turned over a new "dividend growth" leaf recently as it has increased its dividend at a compound annual rate of almost 15% over the past 3 years.

#12 Validus Holdings (NYSE:VR)

Validus is a provider of catastrophe reinsurance. VR has delivered shareholders a 166% total return over the past five years, and it has increased its dividend at a compound annual rate of 13.9% over that period. VR has a very high rating for Dividend Sustainability (94) and the company's double digit dividend growth should continue in the future. Certainly a stock to put on your radar.

#11 Triangle Capital Corp. (NYSE:TCAP)

Triangle Capital is a business development company specializing in private equity and mezzanine investments. TCAP has increased its dividend at a compound annual rate of 9.9% over the past 5 years (including increases in 7 of the past 12 quarters) and delivered shareholders a 356% total return over this period. TCAP has a very attractive current yield of 7.5% and we think that DIY investors should keep this stock on their radar.


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 OHI, CNL. 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.