3 Small Caps with Big Dividends and Modest Payout Ratios

In a low interest rate environment, there is a premium placed on high dividend stocks.

Due to the market bias against small cap stocks, however, there are still many companies with high dividends and modest payout ratios. Three such publicly traded firms are Access National Corp ANCX, Hi-Crush Partners HCLP, and Pacific Coast Royal Trust ROYT.

All have dividends at least 50 percent higher than the average of 1.9 percent for a member of the Standard & Poor's Index, with lower payout ratios and higher profit margins. A high dividend speaks for itself. Investors want the payout ratio to be low so that the dividend can be increased.

It is also a sign of a well-managed company if the dividend payout ratio is below the market average. It is another indicator of a business that is run well if its profit margin is above average, too.

Access National Corp. is a regional bank headquartered in Reston,Virginia -- a Washington, D.C. suburb and one of the most affluent markets in the country. The small cap lender pays a dividend of more than three percent, more than 50 percent higher than the average S&P company.

The payout ratio is very low at 17.70 percent, meaning there is plenty of cash flow to increase the dividend or initiate a buyback program to reward shareholders. It has a very high profit margin of 45 percent.

Hi-Crush Partners LP is another small cap with a big profit margin, over 55 percent.

The company, based in Houston, is a producer of monocrystalline sand, which is "used as a proppant to enhance the recovery rates of hydrocarbons from oil and natural gas wells." The company's stock has more than doubled for 2013. The dividend is over six percent, with the payout ratio under 20 percent. There is a high short ratio, though. The stock was downgraded in mid-October and fell. But it risen more than 12 percent over the last month of market action, so the market discounted that rating.

Another energy company with headquarters in Texas, Pacific Coast Royalty Trust, profits from the sale of oil and natural gas production.

Entities of this type often have high dividends; and at more than 12 percent, Pacific Coast Royalty Trust certainly qualifies. The balance sheet is clean, resulting in an unencumbered cash flow. The payout ratio is modest, leaving plenty of cash to increase the dividend.

As with Access National Corp. and Hi-Crush Partners, the profit margin is very high.

There is nothing wrong with investing in small caps.

Legendary investor Warren Buffett has done very well buying and selling companies, both private and publicly traded. With the proper due diligence, there is no reason others cannot do well in this sector. High dividends, low payout ratios and robust profit margins are certainly indicators leading in the right direction.