A small cap company is defined as a company that has a market cap between $300 million to $2 billion. These ranges are only approximations and can change from investor to investor or from brokerage to brokerage.
When we think of dividend paying stocks, we usually think of blue chip companies that are conglomerates with hundreds of billions of dollars of market capitalization. In most cases this is true. However, there are plenty of small cap stocks with consistent dividend payouts that are often neglected by the markets. This neglect by analysts may lead to a valuation disconnect, which can prove beneficial to investors as stocks may remain undervalued which can provide a big opportunity for investors. Small cap stocks may also be acquisition targets by bigger companies. This can be a perpetual tailwind for small cap stocks.
Tompkins Financial (TMP )with a market cap of $971 million is classified as a regional bank. The company principally engages in generating deposits and originating loans. Its deposit products include checking accounts, savings accounts, time deposits, and individual retirement accounts. TMP has a dividend paying history since 1996. It currently yields 2.74% and is classified as a dividend aristocrat having consecutively raised its dividend for 30 years. The stock has a 2016 EPS estimate of $3.78 and a 2017 EPS estimate of $4.20, pointing to a healthy 11% growth next year. The company has a payout ratio of 44% which leaves ample room for the company to grow its dividend. The stock is up 25% for the year so far, excluding the dividends.
Stock Yards Bancorp Inc.
SY Bancorp (SYBT ) with a market cap of only $626 million – provides commercial banking, personal banking, investment management, and trust services in the United States. Stock Yards Bancorp has a dividend paying history since 1993 and has since then consecutively paid a dividend. Analysts expect a 6% growth in EPS going in 2017. The stock currently trades at 15 P/E which is lower than the broader market. It’s up 18% for the year so far and yields 1.73%. With a payout ratio of 40% based on 2016 earnings there is ample room for the company to keep growing its dividend.
FISI - Financial Institutions Inc.
Financial Institutions Inc. (FISI ) with a market cap of $410 Million is another small cap financial services company that provides consumer and commercial banking and financial services to individuals, municipalities, and businesses in New York. FISI has a dividend paying history since 1999 and currently yields 2.86%. The stock trades at a P/E of 14 as analysts estimate an 8% growth in earnings per share in 2017 from $1.96 to $2.12. FISI currently pays $0.20 after every quarter which amounts to an annual payout of $0.80.
COLB - Columbia Banking System Inc.
Columbia Banking System Inc. (COLB ) with a market cap of $1.73 Billion is another small cap financial services company that pays dividends. Columbia Banking System headquartered in Tacoma, Washington, Columbia Banking System Inc. is the holding company of Columbia Bank, a Washington state-chartered full-service commercial bank. COLB has now consecutively grown its dividend for 5 years and has a dividend paying history since 2003 – a history that has been slightly erratic. Their dividend dipped drastically in the years 2009-2011, but since then have consecutively paid a dividend. Their current payout is $0.76 annually which gives a healthy 2.76% yield.
CHFC - Chemical Financial Corp.
Chemical Financial (CHFC ) is the third-largest bank holding company headquartered in Michigan. The company operates through a single subsidiary bank, Chemical Bank, with 129 banking offices spread over 31 counties in the lower peninsula of Michigan. CHFC has a dividend paying history since 1992 and currently pay a $1.04 annual dividend on a share price of $38 which yields approximately 2.71%. CHFC trades at 14.41 P/E and is currently trading at its 52 week high. Analysts estimate a 13% jump in its earnings per share for 2017 from $2.68 to $3.04.
The Bottom Line
Large cap conglomerates may not be the only source when you go shopping for dividends. Looking deeper into regional banks in an interest rate tightening environment could yield some solid dividends. If you analyze only the public float (shares held by the public and not by institutions and insiders) then the market cap can be even lower which can affect liquidity further.
Check out 5 small cap services stocks that pay dividends here.