Three Small-Cap Dividend Achievers

Karin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

I've been feeling lately, after writing about dividend stocks for almost a year, that there is nothing new for me to discover. That I have already covered every dividend stock of interest, and there are no more good ones.

Which is a discouraging thing, because I have not yet completed my 10-stock perfect dividend portfolio. I have only chosen eight companies, and I need to select two more.

But rationally I know that there are many hundreds of companies that pay out a dividend, and I probably haven’t come close to examining all of them.

In fact, I just found an article this morning recommending three companies that are part of the Russell Global Small Cap Dividend Achievers index.  I haven’t examined any of these, so here is the analysis. All three of these companies are Achievers, which means that they have raised their dividends for at least 10 years.

In my examination, I review the companies on seven different criteria: yield, number of years paying and raising dividends, 5-year dividend growth rate (DGR), 5-year projected earnings growth rate (EGR), total return for the past twelve months, PE and payout ratio. I feel that this selection covers the past dividend-paying history, the potential future earnings growth, and the valuation of the company.

I constructed a rating system that awards points for each of the previous named criteria. A “perfect” score would be 28 points, with 4 points awarded in all seven categories.

The first company is Owens & Minor (NYSE: OMI), a manufacturer of medical supplies. The company is currently trading at approximately $30 and yields 2.9%. It has raised dividends every year for 15 years, its 5-year DGR is 14.2%, and it has returned 9.2% over the past twelve months.

Other metrics that I use when calculating a rating for a dividend company include the analysts’ 5-year annual growth estimate (9.5%), the company’s PE (17.7) and its dividend-payout ratio (51%).

Owens & Minor scores a 15 on my ratings system, which is too low to make it into my portfolio. I do believe that it is a solid small-cap selection, however, and its 5-year DGR is extremely attractive; however, I still believe there are better selections.

The second company is Tanger Factory Outlet Centers (NYSE: SKT), a real estate investment trust. I do not have any REITs in my portfolio at this point – usually their recent 12-month return is very low (if not negative), and there are not very many that meet the 10 years of dividend raises that I consider as necessary for my selections.

The company is currently trading at approximately $35 and yields 2.4%. It has raised dividends every year for 19 years, its 5-year DGR is 3.2%, and it has returned 22.5% over the past twelve months.

The analysts’ 5-year annual growth estimate is 7.6%, the company’s PE is 63.2 and its dividend-payout ratio is 162%. 

Tanger Factory Outlet Centers scores very low on my ratings system; while its total 12-month return is attractive, its valuation is too high, and its growth history of raising dividends is too low.

The third company on the list is Sovran Self Storage (NYSE: SSS), which operates self-storage facilities in 25 states. The aforementioned article examining this company states that the company has raised dividends consistently for 17 consecutive years.

However, when I looked into this company, I quickly realized that this is not true. I don’t know where the other author found his information, but it is clear to me that Sovran cut their dividend in 2009, presumably as revenues declined during the worst part of the Great Recession.

Since then, the dividend has been held frozen for three years and has just been raised with the last distribution that was paid in January, 2013.

I don’t want to disparage the other author, but I do want to let my readers know when I find that false information has been published. The other author claimed that all three of these companies are “quality small-cap dividend payers.” I must respectfully disagree.

 

 


khern0203 has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus