Today is Halloween — a chance to get creative and try on a new look. This is exactly what Australian investors should be doing.
So far this year has been hallmarked by a rush on dividend yield in the form of blue chip or 'core' stocks to compensate for a lackluster return from interest accounts and term deposits. That's going to change.
Today, news emerged that the big banks will likely be forced to limit dividends by the prudential regulator, which wants to enforce tough capital requirements set down by the IMF. The market didn't take the news well and, at time of writing, the banks have fallen hard.
Despite tougher lending practices and capital requirements being enforced, blue chip stocks (those less scary companies we know and love) will still be affected by a major recession, so if your primary reason for holding them is safety, perhaps it's time to reconsider your position.
Since the retailers, miners, and banks appear to be fully valued, it only leaves one option for savvy investors.
It's time to scroll down the list
There are some stocks further down the market cap list that pay better dividends, are respectably priced and likely to grow faster than any of the big banks.
Many don't like to buy them, because they have risks too great for conservative every day 'mum-and-dad' investors but the proof is in the pudding. In the past 12 months, the S&P/ASX 200 (ASX: XJO)(^AXJO) has risen 20.19% against a return of -0.32% from the S&P/ASX Small Ordinaries (ASX: XSO).
Three 'scary' or risky small-cap stocks I've got my watchful eye on are Quickflix (ASX: QFX), Fairfax Media (ASX: FXJ) and Allied Healthcare (ASX: AHZ). In the last month, they have risen by 69%, 8% and 78% respectively.
Foolish takeaway
As Foolish investors know too well, no stock is a buy at any price. Not even Australia's biggest and most reputable companies. Small-cap stocks are definitely riskier than blue chips because they are sometimes illiquid and many, like the ones above, don't pay dividends so invest accordingly.
