Small-Cap Stocks With High Yield

A low-priced small-cap stock with a dividend can look quite tempting to the inexperienced. That lower price should mean a higher yield, plus the chance for growth, right? Wrong. Small-cap stocks that offer a dividend instantly put me on the alert. If a company has less than $2 billion in market capitalization, typically it does not offer a dividend because it’s reinvesting every dime of profits back into the company. It’s still trying to grow organically from infancy to become a midcap and eventually a large-cap stock.

When you do find a small-cap stock that offers a dividend, it’s typically a “sinking ship” kind of situation. Companies like that have lost their fundamental growth story and are desperate for investor interest, so they’ve turned their stock into an income idea just to keep money coming in the bank. If you do find a small cap that pays a dividend, it’s likely at risk for return of capital — meaning the money you buy the stock with is essentially returned to you in the dividend payment.

Source: InvestorPlace

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