If you choose the right companies, capital gains will beat high dividend yields any day. Small and micro-cap stocks offer a bigger reward but sometimes the risk is also much greater when compared to mid-cap stocks. Structuring your portfolio to incorporate some medium-high risk investments will allow you to take advantage growth opportunities and diversify your portfolio.
Here are five stocks which could provide an investor with a great long-term upside.
Australia's richest agree, the next booming Australian industry could be agriculture. The need for food and beverage by Asia's rapidly rising middle class might see Australia's agricultural exports rise to almost $2 trillion in the next century. Ruralco (ASX: RHL) is a small agricultural company that would benefit directly from an increase in farming practices. It pays a healthy 6.1% fully franked dividend and is expected to start steadily increasing profits after a year of extreme weather taking its toll on demand for its products.
Being the powerhouse of your own market is a sure way to deliver profit to shareholders. Silver Chef (ASX: SIV) provides equipment to businesses in a number of sectors under its two divisions, GoGetta and Hospitality. In the past year, the stock price has increased 144% but is still moderately priced and pays a 3.4% dividend.
Integrated Research (ASX: IRI) has a current market capitalisation of $172 million but has a yield of 4.9%. The company operates in the lucrative software and services market. It provides applications needed to monitor businesses computer networks.
Australia's healthcare space is well regarded throughout the world and some of our businesses offer products and services that are highly specialised and may one day surpass iron ore as the country's most profitable export. A small company dedicated to developing next generation medical devices for tissue engineering in cardiovascular and soft tissue repair surgery is Allied Healthcare (ASX: AHZ). It has a massive upside but carries considerable risk but is traded heavily every day, which is a positive for such a small-cap stock.
When times get tough, people need cash to pay bills and pay for living expenses. That is why Cash Converters (ASX: CCV) is a brilliant recession-proof stock. In addition to solid growth prospects, it offers both dividend and value for potential investors. Its diversified business model means it does not rely entirely on its retail business to succeed. It financial services division produces approximately 40% of the company's revenues and provides services unlike any of the banks.
Foolish takeaway
Particularly when buying smaller cap stocks, investors should look to build a diversified portfolio and look for healthy balance sheets. They are essential for smaller stocks that have yet to establish themselves with well-known and effective products and will help your own balance sheet if they wish to pay dividends.
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Motley Fool contributor Owen Raszkiewicz owns shares in Ruralco, Silver Chef and Allied Healthcare.
