Brave Dividend Investors Should Consider These Small Caps

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

Editor's Note: American Greetings has been removed due to their pending transition to a private company. Motley Fool apologizes for the oversight.

Investing in dividend stocks is a great way to build long-term wealth. When most investors think of dividend stocks, they usually look to the usual suspects: the large-cap, blue-chip stocks that are at the top of the Dow Jones Industrial Average and S&P 500.

However, companies that have paid dividends for long periods of time can also be found among the small-cap universe of publicly traded stocks. These four companies offer investors the combination of dividend yields in excess of the yield on the broader market, in addition to the potential for significant capital gains as a result of their smaller sizes. In addition, these companies have familiar consumer products that are easily recognizable for many investors.

Weyco Group (NASDAQ: WEYS) produces and sells shoes. The company is small by most standards, holding a market capitalization of just $275 million, but it offers well-known brands including Florsheim, Nunn Bush, and Stacy Adams. Weyco has a long operating history, as it was founded all the way back in 1896.

Moreover, the company consistently rewards shareholders with rising dividends. Weyco raised its dividend by one penny per share last year, amounting to a 6.25% raise, and followed up with another penny per share increase in April, providing another 6% bump. In total, the stock currently yields slightly more than 3%.

Rocky Mountain Chocolate Factory is a perfect fit for an investor with a sweet tooth. This stock can be more volatile than the broader market, as it is a micro-cap stock with a tiny market value of just $72 million.

However, don’t let the company’s small size scare you away. Rocky Mountain Chocolate Factory is solidly profitable and pours these profits through to its shareholders with a competitive dividend. The company realized 6.25% sales growth over the first nine months of the current fiscal year. Furthermore, the company provided investors with a solid 10% dividend increase in early 2012, and currently yields 3.6% at recent prices.

The Foolish takeaway

Small-cap companies often have greater growth potential than their large-cap counterparts. Smaller companies have more room to run, and each of these companies offers a relatively low valuation.

You shouldn't be scared off just by tiny market capitalizations.  These companies are in the consumer goods industry and offer products that many of us have come across at some point in our lives.  In addition, dividend yields that compare favorably to the roughly 2% yield on the S&P 500 Index make these companies worthy of further research. Investors looking to diversify into smaller stocks while continuing to collect income from their investments may want to take a closer look into these stocks.

If you're on the lookout for high-yielding stocks, The Motley Fool has compiled a special free report outlining our nine top dependable dividend-paying stocks. It's called "Secure Your Future With 9 Rock-Solid Dividend Stocks." You can access your copy today at no cost! Just click here.


Robert Ciura has no position in any stocks mentioned. The Motley Fool owns shares of American Greetings. 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!

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