Consider Small-Cap Dividend Stocks In 2014

From years of experience, I’ve learned that the stronger the run has been, the more likely the run will turn to a limp. Small-cap stocks (NYSEARCA:IWM) have had a strong run. While the S&P 500 Index finished 2013 up nearly 30%, the small-cap S&P 600 finished up nearly 40%. When we look back five years, we see the S&P 500 is up 100%, but the S&P 600 is up 150%. Five years of 20% average annual compound returns would usually be a put-off. That said, I can’t say I’m put off by small-cap stocks (market cap of $5 billion or less). I still see pockets of value in the segment and opportunities to outperform the overall market in 2014.

First, on a macro level, the S&P 600 Small-Cap Index isn’t unreasonably overpriced. On a forward basis, the index is trading at 18.7 times 2014 Thomson Reuters earnings estimates. Admittedly, that’s a bit on the high side, but not discerningly so. Within the small-cap realm, I find dividend growers especially appealing. From my own experience, small-cap dividend stocks have been the lead performers in the High Yield Wealth portfolio in the early stages of the new year. I believe they’ll maintain that lead over the next 12 months.

Source: ETF Daily News

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