In this article, we discuss 12 best micro-cap dividend stocks to buy now. You can skip our detailed analysis of dividend stocks and their performance in the past, and go directly to read 5 Best Micro-Cap Dividend Stocks To Buy Now. 

Microcap stocks refer to the shares of publicly traded companies that have a small market capitalization, typically between $50 million to $300 million. They are often considered riskier investments compared to larger companies because they tend to have lower liquidity, which means there might be fewer buyers and sellers for these stocks. As a result, microcap stocks can be more volatile and susceptible to significant price fluctuations. However, when selected thoughtfully, micro-cap businesses showcase substantial potential for growth that surpasses what’s typically available with larger-cap counterparts. According to a report by Boston Partners, a Boston-based investment management company, research into the past indicates that value-oriented micro-cap funds have shown a trend of performing better than private equity over time. The report referred to data by Preqin, which showed that from the beginning of 1995 to June 2020, the US Private Equity Index grew by 716 percent. This growth, although impressive and higher than the S&P 500 Index’s 255% increase during the same period, was overshadowed by the CRSP Equal Weighted Microcap Index, which saw growth of 740 percent. This comparison highlights the potential for better returns with actively managed micro-cap funds compared to private equity investments.

In one of its reports, Perritt Capital Management delved into the small firm effect, which refers to the tendency for stocks of smaller companies to outperform those of larger companies when considering the same level of risk. This effect was initially studied in 1978 by Rolf Banz during his doctoral dissertation at the University of Chicago. Banz organized NYSE-listed stocks by their market capitalization, creating five portfolios ranging from the largest to the smallest stocks on the Exchange. These portfolios were held for five-year periods, after which the stocks were re-sorted, and new portfolios were formed. He repeated this process from 1925 to 1975, analyzing the monthly returns of each portfolio. Over the 50-year analysis, the first four portfolios, which included all but the smallest NYSE firms, delivered returns in line with their risk levels, suggesting these portfolios were fairly priced or slightly overvalued by the market. These portfolios, collectively, yielded an average risk-adjusted monthly return of -0.06 percent (alpha) or -0.72 percent annually, indicating they underperformed relative to their systematic risk. Conversely, the portfolio holding the smallest NYSE companies stood out, providing investors with a significantly higher risk-adjusted excess return of 0.44 percent per month (alpha), nearly 6 percent annually. This anomaly suggests that smaller NYSE firms, despite their risk, delivered higher-than-expected returns, contrasting with the efficiency of pricing seen in the larger firms’ portfolios.

The report highlighted a study conducted by Professors Avner Arbel and Paul Strebel called “The Neglected and Small Firm Effects.” Their research aimed to test whether stocks of companies receiving less attention from analysts offered higher risk-adjusted returns compared to more researched companies. Analyzing S&P 500 Index companies, they found that as research concentration decreased, risk-adjusted returns increased. Additionally, when combining research concentration with firm size, the favorable risk-adjusted returns were amplified. While the study already showed that smaller firms outperformed larger ones, it revealed that under-researched small company stocks performed even better. Essentially, the lack of analyst attention distorted the risk and return characteristics of stocks from smaller firms.

Microcap stocks often fly under the radar for many investors due to their smaller size and perceived higher risk. However, historical analyses have shed light on the potential of these equities, catching the attention of investors. What’s interesting is that some of these smaller companies, despite their size, also offer dividends to their shareholders. This is somewhat unusual as smaller companies are often assumed to reinvest most profits back into the business for growth rather than distributing them to shareholders. The Procter & Gamble Company (NYSE:PG), Colgate-Palmolive Company (NYSE:CL), and PepsiCo, Inc. (NASDAQ:PEP) are some of the best dividend stocks from the large-cap sector. However, in this article, we will discuss micro-cap dividend stocks.

Our Methodology:

For this list, we screened for dividend companies that have a market capitalization between $50 million to $300 million. We analyzed these stocks through their dividend policies and overall financials. From the resultant dataset, we picked 12 stocks with the highest number of hedge fund investors.

12. Auburn National Bancorporation, Inc. (NASDAQ:AUBN)

Number of Hedge Fund Holders: 2

Auburn National Bancorporation, Inc. (NASDAQ:AUBN) is an Alabama-based bank holding company that provides various banking products and services to individuals, businesses, and governmental agencies. The company currently pays a quarterly dividend of $0.27 per share, having raised it by 2% in February this year. It has been growing its dividends for 22 consecutive years, which makes AUBN one of the best dividend stocks on our list. As of December 13, the stock has a dividend yield of 5.38%.

Auburn National Bancorporation, Inc. (NASDAQ:AUBN) reported a strong cash position in the third quarter of 2023 as it returned $3.8 million to shareholders through dividends. In addition to large-cap dividend stocks like The Procter & Gamble Company (NYSE:PG), Colgate-Palmolive Company (NYSE:CL), and PepsiCo, Inc. (NASDAQ:PEP), analysts also advise diversifying portfolios with small companies.

As of the end of Q3 2023, 2 hedge funds in Insider Monkey’s database reported having stakes in Auburn National Bancorporation, Inc. (NASDAQ:AUBN), compared with 3 in the preceding quarter. The collective value of these stakes is roughly $895,000.

11. FAT Brands Inc. (NASDAQ:FAT)

Number of Hedge Fund Holders: 2

FAT Brands Inc. (NASDAQ:FAT) is a global franchising company that operates and franchises a diverse portfolio of restaurant brands. They specialize in acquiring, marketing, and developing fast-casual and casual dining restaurant concepts. The company has been making regular dividend payments to shareholders since 2021 and it currently offers a quarterly dividend of $0.14 per share. The stock’s dividend yield on December 13 came in at 10.00%, which makes FAT one of the best dividend stocks on our list.

FAT Brands Inc. (NASDAQ:FAT) was a part of 2 hedge fund portfolios at the end of Q3 2023, which remained the same as in the previous quarter, as per Insider Monkey’s database. The consolidated value of these stakes is over $4.8 million.

10. Ames National Corporation (NASDAQ:ATLO)

Number of Hedge Fund Holders: 3

Ames National Corporation (NASDAQ:ATLO) is a bank holding company that offers a range of financial services to individuals, businesses, and municipalities in its local communities. It is one of the best dividend stocks on our list as the company has been paying regular dividends to shareholders since 1998. It currently pays a quarterly dividend of $0.27 per share and has a dividend yield of 5.53%, as of December 13.

At the end of Q3 2023, 3 hedge funds tracked by Insider Monkey owned stakes in Ames National Corporation (NASDAQ:ATLO), compared with 6 in the previous quarter. The total value of these stakes is over $342,000. Among these hedge funds, Two Sigma Advisors was the company’s most prominent stakeholder in Q3.

9. Adams Resources & Energy, Inc. (NYSE:AE)

Number of Hedge Fund Holders: 3

Adams Resources & Energy, Inc. (NYSE:AE) is a Texas-based company that is primarily involved in the exploration, production, and marketing of crude oil, natural gas, and related products. In the third quarter of 2023, the company reported revenue of $760.6 million, which beat analysts’ estimates by $60.5 million. Its operating cash flow for the quarter came in at $11.4 million and it generated $4.8 million in free cash flow.

Adams Resources & Energy, Inc. (NYSE:AE), one of the best dividend stocks, has been making uninterrupted dividend payments to shareholders since 1994. The company’s quarterly dividend comes in at $0.24 per share and has a dividend yield of 3.78%, as of December 13.

The number of hedge funds in Insider Monkey’s database owning stakes in Adams Resources & Energy, Inc. (NYSE:AE) stood at 3 at the end of Q3 2023, with a collective value of over $4 million.

8. BCB Bancorp, Inc. (NASDAQ:BCBP)

Number of Hedge Fund Holders: 4

BCB Bancorp, Inc. (NASDAQ:BCBP) is an American bank holding company, headquartered in New Jersey. The company also offers wealth management and investment services, including financial planning, investment advisory, and trust services. On October 19, the company declared a quarterly dividend of $0.19 per share, which was in line with its previous dividend. Though it does not hold any dividend growth track records, the company has been making regular dividend payments to shareholders since 2006. As of December 13, the stock has a dividend yield of 5.44%.

As of the end of September 2023, 4 hedge funds in Insider Monkey’s database reported having stakes in BCB Bancorp, Inc. (NASDAQ:BCBP), which remained the same as in the preceding quarter. These stakes have a collective value of $792,595.

7. BGSF, Inc. (NYSE:BGSF)

Number of Hedge Fund Holders: 5

BGSF, Inc. (NYSE:BGSF) is a workforce solutions and staffing services company that operates through its subsidiaries. It provides staffing services in various industries, connecting employers with qualified candidates to meet their staffing needs. The company pays a quarterly dividend of $0.15 a share and has a dividend yield of 6.38%, as recorded on December 13.

At the end of the third quarter of 2023, 5 hedge funds owned stakes in BGSF, Inc. (NYSE:BGSF), down from 6 in the previous quarter, according to Insider Monkey’s database. The consolidated value of these stakes is over $2.34 million.

6. AmeriServ Financial, Inc. (NASDAQ:ASRV)

Number of Hedge Fund Holders: 5

An American bank holding company, AmeriServ Financial, Inc. (NASDAQ:ASRV) is next on our list of the best dividend stocks from the micro-cap space. The company declared a quarterly dividend of $0.03 per share on October 20, which was in line with its previous dividend. The stock has a dividend yield of 4.12%, as of December 13.

In addition to popular dividend stocks like The Procter & Gamble Company (NYSE:PG), Colgate-Palmolive Company (NYSE:CL), and PepsiCo, Inc. (NASDAQ:PEP), ASRV can also be added to dividend portfolios for stable returns.

Insider Monkey’s database of Q3 2023 showed that 5 hedge funds owned stakes in AmeriServ Financial, Inc. (NASDAQ:ASRV), up from 3 in the previous quarter. These stakes are collectively valued at over $4 million.

Click to continue reading and see 5 Best Micro-Cap Dividend Stocks To Buy Now. 

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Disclosure. None. 12 Best Micro-Cap Dividend Stocks To Buy Now is originally published on Insider Monkey.