Investing in Small-Cap Stocks for Steady Dividends
When most investors think about high dividend yields, their attention typically gravitates toward large-cap stocks. However, the world of small-cap stocks presents unique opportunities for those seeking consistent dividends.
Small-cap stocks, like those in the Russell 2000 index, usually possess market capitalizations of less than $2 billion. While many associate these stocks primarily with growth potential, a number of small caps also offer attractive dividends to their shareholders. Here, we delve into three small-cap stocks that currently boast competitive yields substantially higher than the S&P 500 average.
1. Universal Corporation (UVV)
Universal Corporation (NYSE: UVV) stands as the leading global exporter and importer of leaf tobacco. Established in 1886 and headquartered in Richmond, this company plays a pivotal role as a wholesale buyer and processor of tobacco, linking farmers with manufacturers of cigarettes, pipe tobacco, and cigars.
With an impressive record of 54 years of dividend increases, Universal Corporation proudly holds the title of a Dividend King. Nevertheless, its recent earnings report raised some concerns. In June, the company reported quarterly revenues of $702 million, which were down compared to previous quarters and year-over-year figures.
Despite a robust performance in fiscal 2025 with a 7% revenue growth, Universal faced challenges during the last quarter. Historically, the company’s earnings-per-share (EPS) have shown a modest increase, roughly 25% higher than a decade ago, though subject to fluctuations throughout the years.
As Universal operates in a declining industry landscape, we foresee limited business growth going forward. Yet, given its stable cash flow, the company can allocate funds for share repurchases, thereby supporting its stock. The stock currently yields an appealing 6.5%, attracting income-focused investors.
2. Apollo Bancorp (APLO)
Apollo Bancorp Inc (OTC: APLO), via its subsidiary Apollo Trust Company, operates five branches throughout Pennsylvania, primarily serving the Kiski Valley area. The bank focuses on tailored banking services, inclusive of residential and commercial loans as well as deposit accounts.
Recently, Apollo Bancorp reported second-quarter results that showcased impressive growth. For this quarter, net income reached $505,000, translating to $0.98 per share, up from $450,000 or $0.87 per share from the previous year. The $55,000 increase in earnings stemmed from a rise in net interest income.
Apollo’s EPS has exhibited slow yet steady growth over the past decade. Following the economic recovery post-pandemic, the bank's EPS rebounded impressively. Investors should look forward to a projected modest growth of around 2%, attributed to the bank’s regional focus and careful capital management. Notably, APLO has maintained consistent dividend raises for 16 consecutive years, with annual increments totaling $0.04. The current yield stands at 5.1%.
3. Stepan Co. (SCL)
Stepan Company (NYSE: SCL), founded in 1932, initially began by selling a single product designed to control dust on rural roads in Illinois. Over decades, it diversified its portfolio to include a wide range of basic and intermediate chemicals, with surfactants accounting for a substantial portion of its revenue.
Recognized as another Dividend King, Stepan has successfully increased its dividend payout for 57 consecutive years. The company’s latest earnings report indicated adjusted EPS of $0.52 for the second quarter, marking a revenue uptick of 7% year-over-year, amounting to $595 million. While surfactant sales rose despite a slight decline in sales volumes, overall performance remained solid.
Stepan's competitive edge comes from its global client base along with extensive engineering expertise, making it a challenging competitor to replace for customers due to the customized nature of its products. With a manageable dividend payout ratio standing at 48%, SCL remains a secure option for income-focused investors.
Frequently Asked Questions
What are small-cap stocks?
Small-cap stocks refer to companies with a market capitalization under $2 billion, often presenting opportunities for growth and investment.
Can small-cap stocks provide reliable dividends?
Yes, several small-cap stocks offer competitive dividend yields that can be attractive to income-seeking investors.
How does Universal Corporation maintain its dividend?
Despite industry challenges, Universal Corporation has a strong history of dividend increases, supported by stable cash flows.
What factors influence Apollo Bancorp’s stock performance?
Apollo Bancorp's stock performance is influenced by its loan demand, regional focus, and economic conditions affecting its operations.
Why should investors consider Stepan Co.?
Stepan Co. provides a stable dividend history alongside a diverse product range and a competitive advantage in its market.
