Advertisement
investing

Dividends From Tiny Companies

North Star Dividend Fund has chalked up solid results by investing in micro-cap stocks.

Small firms need to use profits to expand their businesses, or so the thinking goes. Thus, investors typically associate dividends with large, cash-rich companies. But Eric Kuby and Peter Gottlieb, managers of North Star Dividend Fund (NSDVX), note that more than half of all U.S. stocks yielding at least 3% have market values of less than $1 billion. Plus, compared with their larger brethren, small-cap dividend payers are relatively cheap, they say.

Kuby and Gottlieb want stocks that are inexpensive and yield at least 3%. And they focus on the smallest of the small caps. At last report, 87% of North Star Dividend’s $56 million in assets was in micro-caps, which Morningstar defines as stocks with market caps of $250 million and less.

Advertisement - Article continues below

Beyond size considerations, the managers favor firms with ample free cash flow (cash profits left after capital outlays), little debt and an ability to lift their payouts. Kuby says that paying a dividend helps small firms avoid making overly aggressive moves, such as foolish takeovers. That and the emphasis on bargains in turn help temper the fund’s volatility. Over the past three years, North Star was 38% less jumpy than the small-company Russell 2000 index; at the same time, the fund beat the benchmark by an average of 3.1 percentage points per year. The biggest positions recently were Monmouth Real Estate Investment Corp., Orchids Paper Products and snowplow maker Douglas Dynamics.

K9I-FUNDTRENDS_RANKINGS.indd
K9I-FUNDTRENDS_RANKINGS.indd

Thinkstock

 

Advertisement

Most Popular

HSAs Get Even Better
Financial Planning

HSAs Get Even Better

Workers have more options with flexible spending accounts, too.
July 2, 2020
2020 Stock Market Holidays and Bond Market Holidays
Markets

2020 Stock Market Holidays and Bond Market Holidays

Is the market open today? Take a look at which holidays the stock markets and bond markets take off in 2020.
July 1, 2020
Find a Great Place to Retire
happy retirement

Find a Great Place to Retire

Our cities provide plenty of space to spread out without skimping on health care or other amenities.
July 2, 2020

Recommended

13 Dividend Stocks That Have Paid Investors for 100+ Years
stocks

13 Dividend Stocks That Have Paid Investors for 100+ Years

Here are 13 dividend stocks that each boast a rich history of uninterrupted payouts to shareholders that stretch back at least a century.
May 21, 2020
20 Dividend Stocks to Fund 20 Years of Retirement
stocks

20 Dividend Stocks to Fund 20 Years of Retirement

These 20 high-quality dividend stocks yield roughly 4% or higher and should grow their payouts even more -- a powerful 1-2 combo for retirement income…
March 9, 2020
21 Dividend Increases During the COVID Crisis
dividend stocks

21 Dividend Increases During the COVID Crisis

These 21 stocks were doling out dividend increases as the coronavirus crisis accelerated – and as many stocks were cutting or outright suspending thei…
July 3, 2020
Closing Bell 7/2/20: Double Dose of Jobs Data Drives Stocks Higher
Markets

Closing Bell 7/2/20: Double Dose of Jobs Data Drives Stocks Higher

The Nasdaq closed the holiday-shortened week at all-time highs after Thursday's data dump showed progress on the American employment front.
July 2, 2020