While it’s important to stuff your portfolio big, stable blue-chip dividend stocks like Coca-Cola (KO) and Procter & Gamble (PG), you can sometimes find good businesses and attractive yields in small-cap stocks.
That’s because in some cases, these small-cap stocks — companies with market capitalizations of less than $2 billion — operate in very niche markets with few competitors, or they have strong penetration, just in a limited regional market.
And because they operate with more stability than their market caps might indicate, they’re also able to pay out a fairly steady stream of sizable dividends.
Investors should always keep in mind that when dealing with small-cap stocks, you’ll often find thin trading volumes, meaning a big trade can dramatically move the stock (in either direction), so use stop-loss orders whenever liquidity appears to be an issue. Also, their relatively small operations occasionally make it difficult to find easy financing, so in times of crisis, weakness can snowball in a hurry.
That said, I still like these three small-cap stocks not only because of their great businesses, but also for their nice dividend yields: