Small cap stocks are not traditionally known as being strong dividend payers, as smaller companies tend to invest all cash flow back into growth initiatives. Still, investors could consider expanding their search beyond the large cap names and focus on the smaller caps, which have the potential for outsized returns.

These 3 small-cap stocks could generate high total returns in the coming years, due to a combination of dividends and strong growth.

Artesian Resources (ARTNA)

Artesian Resources Corp. was founded in 1905 in New Castle County, Delaware. Through its subsidiaries, the company provides water, wastewater and other services, primarily in the Delaware region.

Artesian Resources sells and distributes water to residential, commercial, industrial, governmental, and utility customers throughout the state.

In addition, Artesian Resources provides water for public and private fire protection in Delaware, Maryland, and Pennsylvania. The company produces 7.9 billion gallons of water annually through 1,311 miles of water main with a population of approximately 301,000 served.

On August 5, 2024, Artesian Resources Corporation (ARTNA) reported its financial results for the second quarter and year-to-date 2024. For the quarter ended June 30, 2024, Artesian Resources recorded a net income of $5.3 million, representing a 19.9% increase from the previous year’s second quarter.

This equates to a diluted net income per share of $0.52, an 18.2% increase from $0.44 in the same period in 2023. Total revenues for the quarter were $27.4 million, an increase of $2.2 million or 8.6% compared to the same quarter in 2023.

Artesian Resources has enjoyed strong growth for a utility. EPS growth over the past decade has averaged just under 8% per year. That being said, we expect growth to slow somewhat moving forward to a 5.1% annualized growth rate over the next five years. Delaware’s population growth averages approximately 1% per year, which along with 1%-2% annual price increases, provides a baseline growth rate for the company of approximately 2%-3%. The company can potentially increase this further by offering new services, improving economies of scale, and expanding its area.

ARTNA stock currently yields 3.3% and the company has increased its dividend for 30 consecutive years.

Patterson Companies (PDCO)

Patterson Companies, Inc. traces its history back to 1877 in the dental market. The company entered the animal health market with the 2001 purchase of Webster Veterinary. Patterson acquired Animal Health International, Inc. in 2015 and Miller Vet Holdings in 2021. 

Today the company is a large Dental and Animal Health distributor and wholesaler selling dental and animal health products, equipment, devices, office management products, and services. The Dental segment operates in the US and Canada, while the Animal Health segment operates in North America and the UK. In FY 2024, total sales were $6.5B with ~62% coming from Animal Health and ~38% from Dental. 

Patterson reported Q1 FY 2025 on August 28th, 2024. For the quarter, revenue declined 2.2% to $1,542M from $1,578M while diluted GAAP earnings per share declined to $0.15 from $0.32 on a year-over-year basis. On an adjusted basis, earnings per share decreased to $0.24 from $0.40. 

Patterson is being affected by higher inflation and interest rates. However, the company has raised prices, managed costs, and introduced new products to counter negative trends. Patterson maintained guidance for adjusted earnings per share of $2.33 to $2.43 in fiscal 2025. We now believe that diluted earnings per share will increase on average about 2.0% annually out to FY 2030. We now forecast on average a 0.5% annual reduction in share count.

Patterson Companies is a major dental supply provider along with Henry Schein and Benco, who together control about 85% of the market. Patterson has about 30% of the market and this scale should theoretically provide a competitive advantage.

PDCO stock currently yields 4.8%.

Westamerica Bancorporation (WABC)

Westamerica Bancorporation is the holding company for Westamerica Bank. Westamerica Bancorporation is a regional community bank with 79 branches in Northern and Central California. The company can trace its origins back to 1884. Westamerica Bancorporation offers clients access to savings, checking and money market accounts.

The company’s loan portfolio consists of both commercial and residential real estate loans, as well as construction loans. Westamerica Bancorporation is the seventh largest bank headquartered in California. It has annual revenues of about $325 million.

On October 17th, 2024 Westamerica Bancorporation reported third quarter results for the period ending September 30th, 2024. For the quarter, revenue decreased 10.8% to $74.4 million, but this was $3.6 million more than expected. GAAP earnings-per-share of $1.31 compared unfavorably to $1.33 in the prior year, but this was $0.07 above estimates.

Total loans fell 8% to $831.4 million million as commercial loans were lower by 10.1% and consumer loans fell 22.1%. Commercial real estate loans, which make up more than half of the total loan portfolio, were unchanged. As of the end of the quarter, nonperforming loans decreased 25.8% to $919,000 year-over-year.

As with the second quarter, this period had no provisions for credit losses, compared to $400,000 in the third quarter of 2024. Net interest income was $62.5 million, which compares to $64.1 million for the second quarter of 2024 and $72.1 million in the third quarter of 2023.

Earnings-per-share for Westamerica Bancorporation more than doubled from 2008 to 2009, an accomplishment that few banks can claim. Earnings-per-share had declined in what is essentially a straight line until 2018, which was just the second year since 2009 that earnings increased year-over- year. The company had seen flat or higher earnings-per-share each year since before returning to growth in 2022 and 2023. It should be noted that the company is expected to see an earnings decline in 2024. We anticipate an annual earnings-per-share growth rate of 2% through 2029. Westamerica Bancorporation has increased its dividend for the past 30 years. The company most recently increased its dividend by 4.8% for the August 18th, 2023 payment date.

WABC stock currently yields 3.0%.