Thanks to the woeful under-performance of smaller-cap stocks since March of this year, I have been thinking about constructing a small-cap income + growth portfolio, in much the same way as fund manager Gervais Williams is doing at Miton.

While the FTSE Mid-250 index has started to recover this year's losses (yellow line in chart below), both the Small-Cap and AIM 100 indices have yet to follow meaningfully - the FTSE Small-Cap index is still over 7% down from Jan 1, while the AIM 100 index is over 18% down. 

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It seems clear to me that there are currently a number of very attractive value opportunities in the small-cap space, so I wanted to construct a very simple screen to serve as a starting point for further research. 

So I have extracted a preliminary list of smaller-cap higher-yield stocks drawn from the FTSE Small-Cap, Fledgling and AIM 100 indices using the following rules:

  • Market cap over £10m (for a minimum level of liquidity);
  • No foreign primary listed companies;
  • A rolling dividend yield of 5% or over;
  • Dividend cover of at least 1.4x;
  • a Stockopedia QualityValue Rank of 90+.

This is the list of 10 names I have come up with, ready for further research:

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Interestingly, I already own or have owned in the recent past a number of these names; note that an equally-weighted portfolio of these 10 companies gives an average yield of 6.4%, covered over 2x. 

I have already looked at, and like, the following companies on this list: Safestyle UK (LON:SFE), Connect (LON:CNCT), Fairpoint (LON:FRP) and Begbies Traynor (LON:BEG). I shall be looking in more detail into the other names in due course. 

Edmund

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