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American Realty Capital Properties Inc (ARCP), American States Water Co (AWR): 5 Small-Cap Momentum Plays for Dividend Investors

Otter Tail

Otter Tail Corporation (NASDAQ:OTTR), a diversified company including an electric utility and infrastructure businesses, which include manufacturing, construction and plastics, achieved a total return of 42.5% over the past 12 months. Aside from price appreciation, part of that gain was also attributed to dividends. The company pays a dividend yield of 4.0% on a payout ratio of 84% of its current-year EPS estimate. Otter Tail Corporation (NASDAQ:OTTR) has paid quarterly dividends without interruption since 1938. The company projects it will maintain its dividend at $1.19 annually in 2013, while its EPS is expected to increase by between 2.4% and 22.7% this year.

The company’s strength is a good balance between solid cash flow generation from strong and stable regulated electric operations and potential for robust earnings growth from manufacturing and infrastructure operations. The firm’s another strong attribute is share ownership by Bill Gates’ investment arm, Cascade Investment LLC, which is reported to have a 9.56% stake, as presented for the period ending February 15, 2013, in Otter Tail Corporation (NASDAQ:OTTR)’s 2013 Proxy Statement.

PNM Resources

PNM Resources Inc (NYSE:PNM), an energy holding company providing electricity to more than 738,000 homes and businesses in New Mexico and Texas, achieved a total return of 31.0% over the past 12 months. PNM is also a regulated electric utility. The company pays a dividend yield of 2.9% on a payout ratio of 48% of the current-year EPS estimate. The company almost halved its payout in 2008; however, since it has increased its quarterly dividend cumulatively by 32%. Last February, the company hiked its dividend by 14%. PNM is saying it expects to produce “above average dividend growth” in the future, as it targets a long-term payout ratio of between 50% and 60%.

A continued EPS expansion will support future dividend growth, as the company sees 2013 EPS up 4.6%, based on its guidance midpoint. Analysts are relatively positive about the company’s long-term prospects, forecasting a long-term EPS CAGR of 6.2% for the next five years. In the previous quarter, PNM Resources Inc (NYSE:PNM)’s quarterly EPS growth benefited from a robust expansion of Texas’ economy, lower maintenance costs, and expanding load and rate increases. PNM Resources Inc (NYSE:PNM) is priced at 17x its 2013 EPS estimate. Billionaire Mario Gabelli has a large position in PNM; see Gabelli’s top picks.

Final Thoughts

It’s no secret that at Insider Monkey, we focus on the best small-cap picks of the best hedge fund managers. Through this research, we’ve shown that some of the smaller, underrated companies are under covered on Wall Street, and thus, can provide the best opportunity for high returns. One area within this space that often gets no attention is dividend stocks, and income-payers like PNM Resources, Otter Tail, UNS Energy Corp (NYSE:UNS), American States Water Co (NYSE:AWR) and American Realty Capital Properties Inc (NASDAQ:ARCP) have momentum to boot.

Disclosure: none

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