Separating Small-Caps by Dividends and Growth

NEW YORK (BestCredit) -- When investors are looking to enter into the small-cap space, the primary consideration is usually an enhanced potential for growth relative to large-cap counterparts in a similar industry.  

There is certainly nothing wrong with this strategy but it should be remembered that there are small-cap stocks that offer substantial dividends from companies with stable payout histories, as well.  Here, we will look at three stock choices (one poised for growth, two offering elevated dividend payouts) for investors looking in areas other than the commonly traded blue-chips.

A Small-Cap for Growth


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Courtesy of OT Trend

On the growth side, we look at SoupMan (SOUP), a stock that offers sustainable value, a diversified marketing strategy, and a growing product line.  The stock is trading at the lower end of its yearly range, and recent media moves capitalizing on Super Bowl advertising has helped to bring added attention to the company's expanding presence in casino restaurants and supermarket outlets.   

With a current market cap of $19.4 million, the company offers an attractive valuation and the potential for massive growth for long-term investors that are able to withstand market volatility.  The best arguments for potential in the stock can be seen in added sales numbers that are likely to come as a result of new strategic relationships with CCA Foods (CAW), Whole Foods (WFM), and Wegman's.  These deals will allow SoupMan to improve its positioning in a broad range of consumer outlets -- something that is not seen in most of SoupMan's industry counterparts.

Two Small-Caps for Dividends


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Courtesy of OT Trend

The potential for growth, of course, is great.  But there is still no real reason to believe that the Federal Reserve will start to raise interest rates any time soon, and this makes dividend stocks very attractive.  In small caps, the best option for investors is still Prospect Capital ( (PSEC)), a business development company that pairs an asset portfolio that is fundamentally sound along with a superior 11.9% dividend yield.  

The company's reported assets have grown three-fold over the last two-and-a-half years and management has made some aggressive moves to gain larger exposure in real estate markets.

For any institutional investor, this type of exposure creates the potential for substantial profit gains but Prospect's loan backing from Fannie Mae and Freddie Mac will help to protect these positions even further.  Prospect has a solid history of avoiding destructing capital losses and all of these should support the company's elevated dividend going forward.  Stable cash flow, solid revenue growth, and comparatively low valuation levels all make this stock a buy.

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Courtesy of OT Trend

Last, we look at United Bankshares ( (UBSI)), which offers small-cap exposure to the financial sector in a company that has already proven its ability to sustain its dividend payments in both positive and negative market environments.  

United Bankshares has increased its annual dividend for nearly 40 straight years (very rare, to say the least), and the stock currently yields 4.4%.  With four decades of historical dividend growth of 9%, a high degree of operational efficiency, and low credit costs relative to its peers, United Bankshares is a long-term buy.  Adept acquisitions in recent years point to solid growth rates going forward, creating an excellent package for investors looking for stable dividend payouts in a well-managed framework.  

Last year's performance in small-cap stocks was much more impressive than the well-publicized rallies that were seen in the stocks that make up the S&P 500 and Dow Jones Industrials.  For these reasons, it makes sense to have at least some small-cap exposure in your portfolio.  

Some stocks have greater potential for growth, while others offer strong dividends.  These three stocks make up some of the best choices in the class.

At the time of publication the author had no position in any of the stocks mentioned.

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

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