Four Stellar Small-Caps

For this screen, S&P searched among the little guys for names with fat dividend yields and high S&P Quality rankings

by Michael Kaye From Standard & Poor's Equity Research

Small-capitalization stocks as a group have beaten their larger-cap brethren in recent years. For example, year-to-date through Dec. 15 the S&P SmallCap 600 index returned 14.9%, while the large-cap benchmark S&P 500 index posted a 14.3% return. In 2005, the "600" also topped the "500," returning 6.7% vs. the bigger index's rise of 3.0%.

But while investors turn to small caps for the opportunity of superior capital appreciation, they rarely think about them as dividend stocks. Small-caps are generally thought of as growth plays, while larger companies are supposed to be the ones with businesses sizable and stable enough to support payouts to stockholders.

But it's often possible to find exceptions, and that's the fun of stock-screening. In this case, we looked for small-cap issues that also sported a nice dividend yield. For our purposes, small-cap issues are defined as those with market capitalizations of between $400 million and $1 billion.

From the small-cap universe, we looked for those issues with a well-above-average dividend yield of 4%. To refine our list further, we next looked for those stocks with S&P Quality rankings of A– or better. S&P's Quality rankings are designed to capture the nature of a company's growth and stability of earnings and dividends in a single symbol. The high Quality ranking signals that these companies have had the financial wherewithal to reward their shareholders.

When we completed our screen, these four names came up:

Kaye, a chartered financial analyst, is an analyst for Standard & Poor's Portfolio Services. He is the author of The Standard & Poor's Guide to the Perfect Portfolio: Five Steps to Allocate Your Assets and Ensure a Lifetime of Wealth.