These Small, Unloved Companies Are The Next Big Dividend Plays

Core Insights - Small caps are experiencing a resurgence, with significant potential for dividends, specifically a 7.1% payout being highlighted as an opportunity [2][8] Small Cap Performance - Small caps have historically underperformed compared to large caps, but recent trends indicate they are now matching or even surpassing large caps in performance, as evidenced by the iShares Russell 2000 ETF [3] Advantages of Small Caps - Small firms maintain strong client relationships, benefiting from customer loyalty and directly profiting from the strength of the US economy, providing a hedge against global economic issues [4] Dividend Challenges - Many small caps are in early growth stages and may not be able to offer dividends while funding their expansion, contrasting with larger companies that typically provide more consistent dividends [5][6] Investment Strategy - The focus has been on closed-end funds (CEFs) that invest in large caps and high-yield bonds, which have historically provided higher returns and dividends compared to small caps [7] Exception in Small Caps - The Royce Small-Cap Trust (RVT) is noted as an exception, offering a 7.1% dividend while closely tracking small cap performance [8] Fund Structure and Holdings - RVT invests in a diverse portfolio of 488 small caps, with top holdings including IES Holdings, Assured Guaranty, and SEI Investments, all showing strong revenue growth [9][10] Dividend Flexibility - RVT's dividend is not fixed but floats based on the net asset value (NAV), allowing for potential increases in payouts as NAV rises, which has been consistent over the past five years [11][12] Market Position - RVT is currently available at a 9.2% discount to NAV, indicating potential for upside as the discount has decreased from higher levels earlier in the year [12][13]