I have set aside 15% in my asset allocation for small and mid-cap equities. Generally, smaller cap securities are more volatile, but often offer a higher rate of return over the long-term. Most of this allocation is covered by small cap mutual funds in my 401(k).
When many investors think of dividend growth stocks, large-caps like Johnson & Johnson (JNJ) [Analysis], The Procter & Gamble Company (PG) [Analysis], The Coca-Cola Company (KO) [Analysis] and 3M Co. (MMM) [Analysis] come to mind first. Often small/mid-cap stocks are associated with growth stocks, and since the underlying companies are looking to grow there is little or no cash available for dividends. Not all small/mid-cap stocks fall under the growth category, many are considered value stocks and quite a few of these consistently increase their dividends.
For a stock to be included on my Stock Ideas list it must have increased its dividend for at least 10 consecutive years (10 years for Achievers, 25 years for Aristocrats and Champions). Below is a representative sample of several small/mid-cap dividend stocks included on the list, along with the number of years of consecutive dividend increases:
Genuine Parts Co. (GPC) Genuine Parts Co is a leading wholesale distributor of automotive replacement parts, industrial parts and supplies, and office products. This company has increased its dividend for 53 consecutive years and is currently yielding 4.43%. [Analysis]
The Clorox Company (CLX) is a manufacturer and marketer of consumer products. The Company markets brand names, including Clorox bleach, Armor All, STP, Fresh Step/Scoop Away, Kingsford, Hidden Valley, KC Masterpiece, Brita , Glad, etc. This company has increased its dividend for 32 consecutive years and is currently yielding 3.20%.
Integrys Energy Group, Inc. (TEG) operates as a regulated electric and natural gas utility company in the United States and Canada. It purchases, generates, and distributes electric power; and purchases and distributes natural gas. This company has increased its dividend for 51 consecutive years and is currently yielding 7.13%.
Courier Corporation (CRRC) publishes, prints and sells books. Founded in 1824, Courier has two lines of business: full-service book manufacturing and specialty publishing. This company has increased its dividend for 16 consecutive years and is currently yielding 6.34%.
Community Trust Bank Corp. (CTBI) owns and operates Community Trust Bank, Inc. of Pikeville, KY, which provides commercial banking services in Kentucky and West Virginia; and a trust company. This company has increased its dividend for 29 consecutive years and is currently yielding 5.22%. [Analysis]
HCC Insurance Holdings Inc. (HCC) is a multi-line insurer that specializes in aviation, marine, medical stop-loss, offshore energy and property and casualty insurance in the U.S. and the U.K. This company has increased its dividend for 13 consecutive years and is currently yielding 1.99%.
Cincinnati Financial Corp. (CINF) markets primarily property and casualty coverage; it also conducts life insurance and asset management operations. This company has increased its dividend for 49 consecutive years and is currently yielding 6.23%
Leggett & Platt Inc. (LEG) makes a broad line of bedding and furniture components and other home, office and commercial furnishings, as well as diversified products for non-furnishings markets. This company has increased its dividend for 37 consecutive years and is currently yielding 5.21%. [Analysis]
RLI Corp. (RLI) provides selected property, casualty and surety insurance. This company has increased its dividend for 35 consecutive years and is currently yielding 2.12%. [Analysis]
The above is not a buy list, but does demonstrate the availability of small/mid-cap dividend growth stocks to potentially help meet this portion of your asset allocation. Sometimes smaller companies are still run my the original founders’ or their families and there is a pride in these companies that is not always found in those run by “professional managers”.
Full Disclosure: Long JNJ, PG, KO, MMM, GPC, CLX, TEG. See a list of all my income holdings here.