The Motley Fool

3 of the Top Small Caps Money Can Buy

There are two things you must know about investing. One, dividend-paying stocks outperform non-dividend-paying stocks over the long term; and two, small-cap stocks have the highest growth rates on average. However, it can seem nearly impossible to find a dividend-paying small-cap stock that is trading at inexpensive valuations.

Well, I have done the hard part and found three stocks that fit these criteria perfectly, so let’s take a closer look at each to determine which would fit best in your portfolio.

1. Capital Power Corporation

Capital Power Corporation (TSX:CPX) is one of the largest power producers in North America, with 17 facilities that have a generation capacity of more than 3,200 megawatts.

At today’s levels, its stock trades at 18.4 times fiscal 2015’s estimated earnings per share of $1.06 and 18.3 times fiscal 2016’s estimated earnings per share of $1.07, both of which are inexpensive compared with its trailing 12-month price-to-earnings multiple of 61.5.

In addition, Capital Power pays a quarterly dividend of $0.365 per share, or $1.46 per share annually, giving its stock a 7.5% yield. Investors should also note that the company has increased its dividend for two consecutive years, and its consistent funds from operations, including $362 million in fiscal 2014 and $178 million in the first half of fiscal 2015, could allow this streak to continue in 2016.

2. Mullen Group Ltd.

Mullen Group Ltd. (TSX:MTL) is one of the leading providers of specialized transportation services to the oil and natural gas industries in western Canada and trucking and logistics services across Canada.

At current levels, its stock trades at 37.9 times fiscal 2015’s estimated earnings per share of $0.50 and 19.2 times fiscal 2016’s estimated earnings per share of $0.99, both of which are inexpensive compared with its trailing 12-month price-to-earnings multiple of 48.6.

Additionally, Mullen pays a monthly dividend of $0.10 per share, or $1.20 per share annually, giving its stock a 6.3% yield. It is also important to note that the company stated that it plans to maintain this rate for all of 2015, while also pursuing “any strategic acquisitions that may arise,” so investors should not expect to see an increase any time soon.

3. North West Company Inc.

North West Company Inc. (TSX:NWC) is one of the leading retailers of food and everyday products and services to rural communities and urban neighborhoods in Canada, Alaska, the South Pacific, and the Caribbean.

At today’s levels, its stock trades at 19 times fiscal 2016’s estimated earnings per share of $1.51 and 17.6 times fiscal 2017’s estimated earnings per share of $1.63, both of which are inexpensive compared with its trailing 12-month price-to-earnings multiple of 20.7.

In addition, North West pays a quarterly dividend of $0.31 per share, or $1.24 per share annually, giving its stock a 4.3% yield. Investors should also note that the company has increased its dividend for four consecutive years, and its strong operational performance in the first half of fiscal 2015, including a 12.4% year-over-year increase in cash flow from operating activities to $40.24 million, could allow this streak to continue for the next several years.

Could your portfolio use one of these small caps?

Capital Power, Mullen Group, and North West Company are three of the most attractive dividend-paying small-cap value plays in the market. All Foolish investors should strongly consider buying at least one of them today.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

Fool contributor Joseph Solitro has no position in any stocks mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.