Summary
Rising dividends method - Risk Management
Institutional investors are attracted by the high returns generated by small-cap stocks but are turned off by the high potential for risk inherent in these securities. Nevertheless, there are many small-cap stocks that are not at all volatile, including Tootsie Roll Industries, Bank of Granite, Liqui-Box Corp. and American Heritage Life. To identify those small-cap stocks that do not come with great risk, an approach known as the rising dividends method can be used by investors. This method locates financially safe, growing companies through the application of a chain of screens to small-cap to mid-cap stocks. After the companies meeting the initial rising dividends screens have been identified, assessors can do research and pricing evaluation by creating a historical spreadsheet analysis of financials. They can then examine upside potential, risk/reward ratio, and whether or not the stock is attractive within its industry.See the full content of this document
Extract
Catch a rising star.
Like small-cap stocks, dislike the risks? A strategy called the rising dividends method may help you pick some winners and still sleep at night.
For many institutional investors, choosing to invest in small-cap stocks has always been a tough call, especially in the risk department. On the positive side, the stocks' history of outperforming the Standard & Poor's 500 index is well-documented. According to Ibbotson Associates, during the 20-year period from 1974 to 1994, the real returns of the S&P 500 about tripled, while small-company stocks generated a tenfold increase (including reinvested dividends). On the other hand, small stocks have always been more risky in terms of market volatility. And they're at their most precariou...See the full content of this document
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