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My top 3 small-cap stocks

For individual investors, it’s impossible to research and understand all of the best companies on the market and too many of us simple don’t have the time or skills to analyse small caps. Instead many investors choose to focus their time on the same old blue chips, like BHP Billiton Limited (ASX: BHP) and Woolworths Limited (ASX: WOW).

That’s why I’m willing to share my three favourite small-cap stock picks with investors.

Firstly, it should be noted all of the companies’ shares can be volatile and illiquid, making it hard to get in and out of the stock at the price you’d like. Although that doesn’t really matter if you’re a long-term investor.

I believe all of these companies hold exceptional long-term growth potential and are likely to continue paying out great dividends as time goes by.

1. Cash Converters International Ltd (ASX: CCV) has been my favourite small company on the ASX for a while now. Whilst earnings have suffered in recent times – thanks to legislative changes on the fees charged on small loans – Cashies remains a solid long-term growth prospect. As its branch network expands and its lending services increase in popularity it looks an enticing prospect. I’m conscious of the short-term risks the UK business faces but believe any sell-off could provide an opportunity to top-up on the stock.

2. Shine Corporate Ltd (ASX: SHJ) is a favourite amongst Foolish (capital ‘F’) writers but it’s no wonder why. The growing law firm has seen its share price jump 15% in the past month alone. With the business continuing its acquisitive growth in the local Personal Injury (PI) market and an expansion into ‘Emerging Practice Areas’, I remain very excited about the group’s long-term prospects.

3. RCG Corporation Ltd (ASX: RCG) is a stock I owned until very recently. There was nothing wrong with the company and I sold out higher than today’s price but as long as it stays at current levels, it’s firmly on my buy list. It’s the owner of The Athlete’s Foot and exclusive distributor of popular footwear brands in Australia and New Zealand.

One of the reasons RCG has been sold-off in recent weeks could be put down to the poor levels of consumer confidence in the domestic market. However, it’s important to note the company has grown earnings per share for the past eight years. That’s despite a GFC and times of poor consumer confidence.

Our #1 dividend stock idea – Yours FREE! 

I already own Shine and Cash Converters but would gladly add any of these stocks to my portfolio at current prices. However, our top analyst, Scott Phillips, recently identified one cheap but growing small-cap ASX stock with a 6.3% grossed-up dividend yield which I think is a STANDOUT buy today. If you're interested in knowing its name, just click on the link below, enter your email address and we'll send you the FREE report on his top dividend stock idea for 2014 - 2015!

"The Motley Fool's Top Dividend Stock for 2014-2015"

Motley Fool Contributor Owen Raszkiewicz owns shares in Shine Corporate and Cash Converters International Limited. 

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