Small cap stocks are defined as having a market
capitalization of less than $3 Billion. Microcap
stocks are defined as having a market capitalization less than $300
million. Some stocks are even
smaller. Those with a market
capitalization of less than $50 million are considered nano caps. Of course most investors are more familiar
with medium, large, and mega capitalized stocks.
When building a portfolio of income stocks, the
smaller stocks have a place. They have a
big disadvantage and that is liquidity.
By liquidity I refer to the ability to sell your stake in the
stock. Mutual funds have restrictions on
buying the shares of these stocks and therefore, your potential buyers are limited. On the other hand, a well selected dividend
producing stock can be cheap; it can provide reliable dividend increases and in
some cases a nice capital gain.
I took a look at my 2011
portfolio to see how the smaller companies performed over the past five years.
2011 Small Cap stocks
Out of the 52 stocks I picked for the 2011 model
portfolio, 13 qualified as small or microcap.
Small cap refers to stocks that have more than $300 Million and less
than $3 Billion in market capitalization.
Microcap stocks are between $50 Million and $300 Million.
I did not try to diversify the portfolio by market
capitalization. I simply analyzed the
result of my using four criteria to pick stocks and then calculated their
market capitalization.
Comparison of Small Cap 2011 stocks with total portfolio.
Two tables are presented below. One is the result of the stock in the 2011
portfolio that are small cap or smaller and the second table reports on the
total 2011 portfolio.
Small Cap Goup
As compared with the total 2011 Dividend Machine
portfolio, the small caps have underperformed.
The entire portfolio has gained 56.24% since inception. These 13 stocks have gained only 38%. The caveat is that two stocks were sold and
those proceeds are not reinvested; they are held as cash with no chance for
capital gain.
Dividend appreciation of the total portfolio is 24.71%
whereas the small cap group has gained only 10.43%. I measured this using the 11 stocks remaining
in the small cap group after HGIC and MPR were sold.
Two small stocks are poor performers. Landauer, symbol LDR, has halved its dividend
recently and the stock price reflects that negative event with a capital loss
of 22%. Espey Manufacturing, symbol ESP
has barely increased the dividend over the past five years and its price is
flat.
Two stocks were home runs. HGIC was sold for a 92% gain. In the real world, you would reinvest that
money, but in my model portfolios, I carry that gain as cash. The best capital gains performer that is
still in the portfolio is Utah Medical, symbol UTMD up 114% over these five
years.
Westwood Holdings group, symbol WHG is the kind of
stock we all want. WHG provided a
capital gain of 59% and a dividend increase of 42.86%. Mine Safety Appliances, symbol MSA, provided
a capital gain of 60% and a dividend increase of 28%.
TheMoneyMadam
Disclosure: Long UVV, NHI, ESP, YORW, WHG
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