General consensus is that small companies need to plow every available penny back into the business in order to fund their growth. However, just as in the large-cap world, dividends in the small space show financial discipline, often steady cash flows and low debt. These added dividends have many positive effects, including lower volatility and higher returns through dividend compounding. In addition, small stocks are often the leaders in bullish economic cycles. As fears of current economic malaise still persists, small-cap dividend stocks can pay while you wait out the storm.
Just as with large market capitalization dividend payers, investors testing the waters of the small-cap space should look for quality balance sheets, good free cash flow generation and high returns on capital. These are often hallmarks of value-styled stocks and many of the small-cap dividend leaders fall within that space. Investors may want to take a look at an ETF like the SPDR Dow Jones Small Cap Value (NYSE:DSV) for a starting point for individual stock ideas.
Source: Investopedia
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