After a year in which many companies suspended, cut, or eliminated altogether their shareholder payouts, this may be an optimistic sign, at least for the companies in our SmallCap Informer coverage universe.
Among the recent changes, Winnebago (WGO) raised its dividend 50% to $0.18, while Extra Space Storage (EXR) boosted theirs 25% to $1.25 and Methode Electronics (EXR) increased its payout 27% to $0.11.
Earlier in the year, Eagle Materials (EXP) raised its dividend 150% to $0.25, and LCI Industries (LCII) increased theirs 20% to $0.90. Other 2021 dividend raisers include Simpson Manufacturing (SSD), Evercore (EVR), Franco-Nevada (FNV), Cyrus One (CONE), and Winmark (WINA).
That’s quite a fine collection of increases. While dividends are not a crucial component of the annual return expectations of most of the companies that are covered in the SmallCap Informer, we do follow a handful of companies that offer above-average yields such as Owl Rock Capital (ORCC) and real estate investment trusts Extra Space Storage (EXR), Physicians Realty (DOC), and Cyrus One (CONE).
In all other cases, we don't focus on dividends, preferring to evaluate the potential for fundamental growth and capital appreciation first and foremost. Of course, we won't reject a company's dividend when it's offered, but our desire is for adequate total return.
When an emerging growth company initiates a dividend, it can sometimes be seen as an acknowledgment that management has run out of ideas for reinvesting the company's earnings with an aim to growing its business. But there are limits to how much capital a company can reasonably or effectively deploy, in which case paying a dividend is an attractive way of rewarding shareholders without sacrificing other needs of the business.
The yields paid by most of the companies in the SmallCap Informer aren’t going to be significant in most instances, but the added percentage or two of return that comes from dividends over time just might tip the balance to assist a portfolio in eking out that additional bit of portfolio returns that can change a position or a portfolio into a profit maker.
Reprinted from the September 2021 issue of the SmallCap Informer.
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