Who Knew? Small cap companies are becoming big dividend payers

Who knew? Small cap companies are showing investors the money, according to Christopher Bennett, senior analyst, S&P Dow Jones Indices. “We’ve actually seen dividends increase significantly in the smaller companies,” he says. There has been a 10.2% jump in the number of issues paying a dividend within the SPDR S&P 600 SmallCap Index (SLY), according to the firm, which now shows more than half of these companies paying a cash dividend. “We’ve seen dividend growth significantly overshadow the growth of dividends in the S&P 500 (^GSPC).”

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Rising dividends, a sign of future cash flow, are helping these smaller stocks attract fresh money. The SPDR S&P 600 SmallCaps have gained nearly 5% this year, while the S&P MidCap 400 ETF (MDY) has gained nearly 6%. “Investors are noticing value in small and mid caps that they didn’t capture last year,” observes Bennett who sees that trend continuing.

The stronger dollar has become more bullish for small companies and even more bearish for large multinationals during Q1 ‘15. For companies that generate less than 50% of sales inside the U.S., revenues are expected to slump 10.2%, according to FactSet. For those that get more than 50% of sales inside the U.S., revenues are expected to rise 0.6%.

Despite the Fed's best efforts to cool the dollar last week, it keeps marching higher, up over 6% this year, as tracked by the PowerShares DB US Dollar ETF (UUP).  That means small caps stocks may continue to shine.

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