In today’s low-interest-rate environment, dividend-paying equities have become an attractive alternative source of income not only because of the current income they provide but also because of their potential for growth. Unfortunately, when investors think of dividends, they tend to think of mature large-cap companies as the primary source. As a result, we feel that many investors mistakenly overlook small-cap equities as attractive income options.
Why Small Caps for Income?
Many investors wrongly assume that small-cap companies can’t afford to pay dividends because their main focus is on growth and they need to reinvest their earnings to support that growth. We feel this view stereotypes all small-cap companies, and there are many small-cap companies that have proven business models with relatively stable earnings streams. We believe these companies have the ability to pay out dividends to shareholders and grow them over time.
Below we will compare a cross section of WisdomTree’s small-capitalization Indexes across the global landscape with common large-cap indexes to highlight the differences in the global small-cap opportunity set.
• We will use the S&P 500, MSCI EAFE and MSCI Emerging Markets indexes to represent domestic, developed international and emerging market large-cap equities, respectively.
• Also, we will use the Russell 2000 Index to represent a broad measure of U.S. small-cap equities.
These indexes were chosen because of their scope in their respective asset classes and their general popularity for tracking and measuring these segments.