Stocks come in all sizes. One of the ways in which the size of a company is measured in the stock market is market capitalization, which is derived from multiplying a stock price with the number of shares outstanding.bag of money moneybag

Stocks are classified in different tiers, based on their market capitalizations. Investors can choose from large caps, mid-cap stocks and small-cap stocks. While there is no strict definition as to what constitutes a small-cap stock, it is widely considered to be a stock with a market capitalization of $2 billion or less.

Top Small-Cap Dividend Stocks

Small caps have a number of advantages over their large-cap peers   ̶   specifically, higher growth potential as a result of their smaller businesses. While many small caps do not pay dividends, preferring to reinvest all their cash flow back into the business, some have stable enough profits to justify dividends.  Here are three small-cap dividend stocks that fit the bill.

Terra Nitrogen Partners (NYSE: TNH)

The investing case for Terra Nitrogen is simple: People will always need to eat, which means there will always be demand for food.

Terra Nitrogen manufactures nitrogen fertilizer. The current environment in the nitrogen industry is fairly weak, but the strong long-term economics of agriculture should result in increased demand for Terra Nitrogen’s products. That’s why, despite its current troubles, Terra Nitrogen is a cheap play on agriculture and could be a long-term winner.

Terra’s principal product is ammonia, a primary ingredient of nitrogen fertilizer. Nitrogen fertilizer helps farmers increase crop yields. The climate for Terra Nitrogen is poor right now, as a poor harvest season last year set the stage for declines in sales volumes. This is why the company reported a 17% decline in net profit last year.

However, these issues are likely to be short term. The long-term trend remains, that farm productivity and crop yields need to improve to feed a growing population. The good news is that investors are paid very well to wait for business conditions to improve.

Since Terra Nitrogen is classified as an MLP, it distributes most of its profits to investors. It pays a variable dividend; each quarterly payout is based on a percentage of earnings. Over the last year, Terra paid $9.56 in cumulative distributions, which represents a nearly 9% yield based on the current unit price.

Rocky Mountain Chocolate Factory (NYSE: RMCF)

Rocky Mountain Chocolate Factory owns and operates gourmet chocolate and confection stores and self-serve frozen yogurt stores. Its stores are operated using both the company-owned and franchised formats. Rocky Mountain also manufactures a wide range of premium chocolates and other confectionery products.

Rocky Mountain could be a sweet stock for income investors. It sports a 4.8% dividend yield, and has paid its dividend for 52 quarters in a row, spanning 13 years. The reason it has such a strong dividend    ̶   even though it is a relatively tiny company    ̶   is that its industry, food, is very stable.

And, due to its small size, there is a lot of growth potential.For example, last year the company grew earnings per share by 12% to $0.73 per share, which easily covered its $0.48 per share dividend.

Future growth will be fueled by continued new store openings. Last quarter, Rocky Mountain opened nine new Rocky Mountain Chocolate Factory stores, eight of which are in the international markets. For such a small company, Rocky Mountain has a significant international presence, with stores in Canada, Japan, Turkey, South Korea, the Philippines, Saudi Arabia and the United Arab Emirates.

This small-cap dividend stock trades for 13 times earnings, a significant discount to the S&P 500.With its high dividend yield, it could be a tasty opportunity.

PetMed Express (NYSE: PETS)

PetMed Express is a marketer of prescription and non-prescription pet medications, health products and supplies for dogs and cats. It is a licensed pharmacy and operates through the 1-800-PetMeds brand. It offers over 3,000 different products, including a variety of private label products. According to the company, it’s the largest pet pharmacy in the country.

In this slow-growth economy, industries that are growing at high rates are hard to come by. But pet spending is one of them. If there is one certainty is an economy full of uncertainty, it is that Americans will not hesitate to keep man’s best friend happy and healthy.

For example, in its last assessment of the pet care industry, the U.S. Census Bureau found that from 2007-2011, spending on pet care grew 16.5%, or roughly 3% per year. That is a higher level of growth than the economy as a whole. Pet care grew to a record $61 billion industry by 2011. And, spending has in all likelihood continued to grow since then, as the survey period encompasses the Great Recession.

PetMed Express offers a 3.7% dividend yield.

Small-Cap Dividend Stocks: Growth Is Key

Agriculture, food and pet health care are industries that have long-term growth potential.

Terra Nitrogen, Rocky Mountain Chocolate Factory and PetMed Express are all small-cap dividend stocks that could generate above-average revenue and earnings growth going forward. In addition, they each offer high dividend yields that could make the stocks solid picks for growth and income.

Published by Wyatt Investment Research at