You could almost never go wrong buying elite businesses …
This includes some of the world’s greatest companies like Procter & Gamble (PG) or Coke (KO).Buying and holding these names over the past few decades resulted in huge returns for investors.
These elite companies can be fantastic companies to own. They are legendarily profitable businesses with world-famous brand names. When professional investors gather to discuss great businesses, these names always come up.
But if investors focus solely on the world’s biggest companies, they miss out on large group of stocks that can help them grow wealthy.
This often presents a problem with the biggest blue-chip names. When everyone wants to buy something, it almost always commands a premium price. An investor can end up waiting a long time to get a chance to buy these premium businesses for bargain prices.
That’s why I encourage investors to learn about the class of elite, small-cap dividend-payers that also have great brand names … competitive moats … stable cash flows… and long histories of uninterrupted dividend growth.
They just happen to be much smaller than giants like P&G and Coke. And while some of these elite firms provide brand-name products and services you might use every month, most people have never heard of them.
Their small size makes them fly under the radar of institutional investors. Plus, many pension funds, mutual funds and hedge funds are just too big to buy these small-cap dividend-payers.
For example, there is a list of over 100 small-cap, dividend-paying stocks that Wall Street has largely ignored. These small caps have a lot in common with companies like Coke and McDonald’s (MCD).
They are safe companies. Plus, all the names on this list have been raising their dividends annually for more than 10 years. Most have been around for more than 25 years.
Like many large-cap, dividend-paying stocks, these companies generate tons of cash flow. They have competitive advantages in their respective industries. They also have solid management teams.
How to Bag a Gain — Literally!
Take Bemis (BMS) for example. The company was founded in 1858. They are one of the largest packaging companies in America. And the company pays a 2.6% dividend that has been raised annually for 31 consecutive years. That’s a longer streak than industry giants McDonald’s and Chevron (CVX).
You probably don’t even realize how many bags and packages you use each day. Your cereal box has a bag in it. Your freshly ground coffee likely comes in a bag. When it’s time to feed the dog, you probably reach for a bag. Every time you tear open a package, you’re opening a bag.
And there’s a good chance that bag is made by Bemis. Millions of products — from food and customer goods to medical devices — go to market each day in Bemis packaging.
Below is a 30-year chart of Bemis. As you can see, the company has had its ups and downs. But the stock has steadily moved higher. This is exactly the kind of business that’s great for long-term investors seeking steady and safe income.
Ordinary Items, Remarkable Gains
Brady Corp. (BRC) is another example on an elite small-cap dividend company that few people ever heard of.
Brady was founded over 100 years ago. The company makes signs, labels, badges and ID cards. This includes everything from the “high voltage” signs you might find in factories and storefront windows … to the tiny barcode stickers you see on thousands — even millions — of items.
These items fall into the category of “things you see everywhere but never notice.”
They now operate on six continents and employ over 6,400 people. The company also pays a huge 3.9% dividend that has been raised annually for 30 consecutive years.
Below is a 30-year chat of Brady. This is another small dividend elite company that’s steadily moved higher over the past few decades while increasing their payout to shareholders.
However, Brady has been in a rough patch over the past few years. Growth has slowed, which resulted in the stock trading sideways over the past few years.
I suggest using this weakness to buy shares right now.
Over the past two years, Brady has restructured its business. This included closing underperforming factories and adding new leadership teams to support and train employees.
Brady is already seeing strong results from this restructuring. The company generated $40 million in operating cash flow last quarter. This compares to just $17 million in last year’s comparable quarter.
Today, Brady trades at just 14 times forward earnings. This is much cheaper than McDonald’s or Coke — which are trading at 18 times forward earnings. Plus, the company expects to grow its earnings by more than 15% from 2015 to 2016.
Bemis and Brady are just two examples of the many excellent small-cap dividend-payers out there you can confidently hold a long-term position in.
Keep in mind: These stocks aren’t going to soar 100% overnight … but they can form the “core” of a safe retirement account. And because of their small size, we have less “buying competition,” which means we can often buy them for bargain prices.
If you are a long-term investor seeking safe and steady income, these are two names that could make a great addition to your portfolio.
