By Lawrence C. Strauss

Small-cap stocks have had a rough ride amid the recent market turmoil. Yet there are some pockets worth considering for investors looking for reliable dividends.

"I don't think you should be any more worried about investing in a dividend stock that's a small-cap than a large-cap," says Chip Rewey, a registered investment advisor and chief investment officer at Rewey Asset Management in Summit, N.J., who focuses on mid- and small-cap issues. "The dividend policy has to make sense [for a company] as far as why they're doing it, as far as coverage of the dividend and the ability to sustain it and even grow it over time."

Small-caps can have risks, a key one being liquidity. Investors need to be aware of that if they are buying stocks on their own. If they invest through a mutual fund or a separate account, they need to have confidence in the portfolio manager.

Small-caps have struggled this year even more than large-caps, as the market has wrestled with factors such as the uncertainty around the Trump administration's tariffs. As of May 5, the small-cap Russell 2000 index was down about 10% year to date, including dividends, compared with a 3.5% drop for the S&P 500.

Shares of Columbia Banking System, a small regional bank based in Tacoma, Wash., have been caught up in that selloff, having lost 12% so far in 2025. The stock does, however, sport a yield of 6.2%. Its market cap is about $5 billion.

Rewey says the bank enjoys strong credit quality and expects its pending acquisition of California's Pacific Premier Bancorp to pay off nicely.

Northwest Natural Holding, whose utility subsidiaries distribute natural gas and water, has a market cap of about $1.8 billion and yields 4.5%. Based in Portland, Ore., the company in January closed on its acquisition of SiEnergy, a Texas natural-gas utility, to help boost growth.

The stock, which has returned 13% this year, looks attractively valued at 14.5 times the $3.01 2026 FactSet consensus profit estimate. The company put through a small quarterly dividend increase last fall to 49 cents a share.

Rewey also likes ABM Industries, which yields 2.1% and has a market cap of about $3 billion. The stock has lost about 2% this year. The company's offerings include building maintenance, micro grid systems, and power storage.

"There's a lot of resiliency and a good service component here," he says, adding that the company has been buying back its stock and that "they do generate a good bit of free cash flow."

ABM late last year declared a quarterly dividend of 26.5 cents a share, up four cents, or nearly 18%, from 22.5 cents.

Another way for investors to play small-cap dividends is through funds. Todd Trubey, a senior manager research analyst at Morningstar, recently found that about 10% -- or roughly 30 -- small-cap value and small-cap blend funds had a trailing 12-month yield that exceeded the 1.9% reading of the iShares Russell 1000 Value exchange-traded fund.

In small-caps, Trubey says, "there's not a lot of yield out there that people are capturing, intentionally or inadvertently, but there's some."

One mutual fund to consider is the $890 million Royce Small-Cap Total Return. It has a trailing 12-month yield of 3.15%, according to Morningstar. "It's defensive and provides some yield," says Trubey.

There's also the $28 billion Vanguard Small-Cap Value ETF, which yields about 2.3%. Morningstar cites its "broad diversification and razor-thin expense ratio" of 0.07%.

Income seekers need to tread carefully, but there are some small-cap dividend stocks and funds worth considering.

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May 08, 2025 02:30 ET (06:30 GMT)

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