There are several reasons for this. First, large-cap companies are better known and have more analysts following them. It stands to reason they are more efficiently priced than small-cap stocks with fewer (or none) analysts. Secondly, small-cap stocks simply have longer growth runways ahead. A company with a market cap of $500 million will simply have more room to grow than a company with a market cap of $50 billion. If it makes it to $1 billion, and you've invested, you double your money; if the large cap company adds $500 million to its market cap, you've only made 1%.
The trick with small-cap companies is knowing which ones will double and which will go bust -- as many of them do. Here are ten small-cap stocks with dividend yields of at least 3% -- some with signifncantly higher yields than that. These stocks have reasonable price-to-earnings ratios and market caps under $2 billion. These stocks are worth added attention when looking to improve your dividend portfolio.
1. Universal Corporation (UVV)
Universal Corporation is the world's leading leaf tobacco merchant and processor. The company was founded in 1918 and has increased its dividend payments for an amazing 44 consecutive years.
The company acts as an intermediary between tobacco farmers and large tobacco corporations that process tobacco into cigarettes, chewing tobacco, or other end use products. The tobacco industry as a whole has been under pressure due to rising taxes and an ever-growing awareness of the dangers of smoking. As a result, Universal Corporation has seen virtually no earnings-per-share growth over the last 15 years. At first glance, this would make Universal Corporation seem like a poor investment, but the tide appears to be turning.
Universal Corporation will soon begin supplying cigarette giant Philip Morris (PM) with tobacco. Previously, Philip Morris had purchased directly from farmers. Philip Morris expects to be able to reduce its tobacco spending by working with Universal Corporation. If the expected cost savings are realized, other large cigarette corporations could soon ink deals with Universal Corporation -- which would be very beneficial for shareholders.
The company currently has a dividend yield of 4.4%. The company's high yield gives investors current income while they wait for earnings to increase from the recent Philip Morris contract, as well as other potential future contracts. The company's stock has plenty room to rise with a price-to-earnings ratio under 15. Universal Corporation is a small cap value stock with a high yield and upside potential from potential new deals with large cigarette companies.