NYSE MKT Analyzes the Trend

Recently, the number of small-cap companies paying dividends to their shareholders has been on the rise. Looking at companies listed on NYSE MKT, the New York Stock Exchange’s market for small-cap companies, we’ve seen an almost 25% increase in the number of small-cap businesses offering dividends in recent years.

The Pros and Cons to Offering Dividends as a Small Cap

There are a couple drivers behind the recent shift of small-cap companies offering dividends.

In volatile times when investors start to shed riskier small-cap stocks in favor of larger, blue-chip companies, they tend to hold on the longest to the stocks that pay dividends. It can be more difficult for investors to part with a company that’s providing regular income versus a company that’s not. It could be that small-cap companies have seen a level of volatility over the last decade that’s made dividends a good option for maintaining shareholder interest.

Another reason a higher number of small-caps are choosing to offer dividends could have to do with portfolio inclusion. Offering a dividend provides the potential for small caps to be included in dividend-oriented mutual funds and other income-oriented portfolios that are traditionally heavily weighted with large caps.

Pros

  • Investors may hold on to dividend-paying stocks longer than their other small-cap counterparts, particularly in a volatile market
  • Paying a dividend may make the company eligible for inclusion in dividend-focused mutual funds and other income-oriented portfolios

Cons

  • Offering a dividend means you’re regularly paying out money that could be reinvested back into the company for growth
  • Once a dividend is in place, decreasing or discontinuing the dividend may be interpreted as a sign of distress and trigger an investor sell-off


Whether large or small cap, companies that don’t offer a dividend are able to reinvest profits back into their company to fund growth. Since small-caps typically have a lot of room for growth, this funding can be important.

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