3 Small Caps Offering Big Dividends

NEW YORK (TheStreet) -- Just because big dividends are not commonly associated with small cap stocks does not mean that is always the case. There are many small cap stocks with dividends more than twice the average of 1.9% for a member of the Standard & Poor's 500 Index. Three for long term investors to consider featuring very appealing dividends are Oak Valley Bancorp (OVLY), National Research (NRCIB) and Pattern Energy (PEGI).

Each of these publicly traded companies is profitable with a supportable dividend payout ratio and a high dividend yield that has the potential to grow even more based on cash flow.

Oak Valley Bancorp is a small cap lender in northeastern California. It has a solid balance sheet with no debt and plenty of cash. There is a profit margin of over 20% with the industry average being 0.10%. The return-on-investment is far superior to the industry average, too. Earnings-per-share growth is also bullish: Up 13.10% this year compared with 5.80% for the past five years. For the most recent quarter, consolidated net income hit a record high. Net income for 2013 was up from 2012, too. Oak Valley Bancorp easily has the cash flow to support its present 4.65% dividend yield and raise it in the future with income rising to record amounts.

Momentum investors should appreciate that the share price for Oak Valley Bancorp is up for the last week, month, quarter, six months, and year of market action.


Headquartered in Lincoln, Neb., National Research provides analytics for healthcare providers, payers and other healthcare organizations in North America. For its shareholders, it provides dividend income at a rate of 6.97% from a very low payout ratio of just 12.70%. There is also a bullish earnings trend: up 28.40% this year as opposed to 17.40% growth for the last half decade. It has little debt, ample cash, and robust margins: the operating margin is nearly 27% with a gross margin of more than 58%.

Pattern Energy went public in September 2013.

The company owns, operates, and develops wind power projects in North and South America. At present, the dividend yield is 4.33%. Wind power capacity has increased by almost 20%, according to Worldwatch, with the United States having nearly a 30% rise in 2012.

With that trend expected to continue, so should the growth potential for Pattern Energy Group, and its dividend. Pattern Energy Group is committed to that payment to its shareholders as Mike Garland, president and CEO, stated that, "With long-term contracted revenue streams from our existing assets and an identified pipeline of attractive growth opportunities, Pattern is well-positioned to provide returns to shareholders in the form of a dividend, which we will look to increase as we grow our cash flow per share."

No matter what the market capitalization of a company, the role of the dividend should never be overlooked.

According to John Bogle, founder of the Vanguard mutual fund family, dividend income has provided 4.5% of the total return in the stock market over the 20th century. Just the act of a publicly traded company paying a dividend is a show of strength. The management of the company is declaring that it can share the proceeds of operations with all shareholders without hindering future growth. Paying a dividend is also a sign of respect for the rights of all shareholders to participate in the proceeds of the business.

For investors, there is no reason that small caps cannot provide a rewarding total return for the long term. Oak Valley Bancorp, National Research Corp., and Pattern Energy Group all have business models that can finance and increase dividend payments to shareholders for the future. The management has also clearly demonstrated that rewarding shareholders with an above average dividend yield is a major objective, too.


At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Jonathan Yates has written for numerous publications including Newsweek and The Washington Post. He is a former general counsel for a publicly traded corporation. Much of his career was spent working on Capitol Hill for Members of Congress in both the House and Senate. He has degrees from Harvard University, Georgetown University Law Center and The Johns Hopkins University.

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