Best ASX dividend Stocks: Small Caps

Small Caps pay dividends too

Under the Radar Report researches over 100 Small Caps. 50% of these Small Caps pay investors dividends.

Investing for Growth with a Dividend

Our focus is on investing for growth. But that doesn't mean that you won't get income too. In 2008 our ASX Small Cap portfolio manager invested in the Small Cap stock TPG for below 60 cents. In 2020 he is receiving a special dividend of between 49-52 cents per share. What ASX investors are receiving now is a dividend that’s close to the entire value of the The Idle Speculator's initial investment. This can only be achieved through ASX Small Cap stocks.

Dividend paying ASX Small Caps can give you income through dividends plus share price growth potential.

  • Access the best ASX dividend stocks to buy that will give your portfolio growth. 

What about the risks of investing in shares?

There are risks in investing in ASX shares, but the ASX Small Cap dividend stocks we recommend have delivered an annual cash yield of up to 5% before you include franking credits, rather than a yield of 2% from a Government bond. Plus, you get capital growth potential, unlike a bond or bank deposit.

Invest in ASX dividend stocks for the long-term

Consider investing in ASX dividend stocks for the long-term because you can grow your capital and get income from the dividend payment too. 

When a Small Cap stock pays dividends, it shows that the Small Cap is a quality investment and it represent an important price signal for the stock market. When there is increased uncertainty and the stock market comes under pressure, if the Small Cap is able to maintain and even increase dividends, this augurs well for your portfolio’s ability to weather the storm.

  • Access this week's best ASX Small Cap dividend stocks to buy

ASX Dividends Stocks in a Small Cap Portfolio

Investing in the stock market is all about building a portfolio of 7-10 ASX stocks that will give you a combination of income and growth. It is also about minimising your risk through diversification. 

Diversification is powerful to even out the returns to reduce risk

The great thing about Small Caps is the variety of different sectors on offer, which is sharply constrasted by the concentration of exposure in the ASX 200 to banking and resources. For example, you don't want to invest in only two companies which operate in the same sector. Don't put all your eggs in one basket!

Should I re-invest my dividends?

If you re-invest your dividends this will work to supercharge your returns over the long-term. Albert Einstein is rumoured to have said that compound interest is the eighth wonder of the world, but we doubt this. Even so, you can see its effect when you reinvest dividends. If you invested $1000 and achieved an 8% annual return every year over forty years, made up of 3% dividends and 5% capital gain, this would have appreciated to $21,720 with re-invested dividends and $7,040 without re-investment.

Dividends aren’t everything

A strong balance sheet is most important. We have invested in a number of companies (including two in media and one in contracting) that made efforts to repair their balance sheets by forgoing dividends. These companies subsequently delivered great cash flow.

If I want income, why don't I just put my money in a bank?

Try finding a term deposit that has a rate above 2.5% where your money is not locked up. You can’t get 2% from a govt bond. Even if you do, you’re taking price risk. If interest rates go up, the value of your bonds goes down.

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