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Income investors tend to focus on the largest companies as these are often seen as the safest choices. But dividend growth investors should also consider small-cap stocks that have market capitalizations below $2 billion.

Many small-cap stocks in the Russell 2000 Index pay dividends to shareholders. In addition, small-cap stocks could have stronger growth potential over the long-run than large caps.

In this article, we will discuss 3 small-cap dividend stocks for dividend growth investors.

SpartanNash Co. (SPTN)

SpartanNash is a value-added wholesale grocery distributor and retailer. The corporation supplies 2,100 independent grocery retail locations in the United States. The company itself also owns 144 supermarkets. SpartanNash operates under retail banners such as Family Fare, Martin’s Super Markets and D&W Fresh Market, among others. The company is also a distributor of grocery products to U.S. military commissaries.

SpartanNash reported fourth quarter 2023 results on February 15th, 2024. Net sales of $2.25 billion was a 2.8% decrease from $2.31 billion in the same prior year period. Adjusted earnings from continuing operations increased by 25% year-over-year to $0.35 per share and Adjusted EBITDA rose 14% year-over-year to $53.6 million.

Management initiated its guidance for fiscal 2024 and expects to see total net sales of around $9.80 billion, up from $9.73 billion in 2023. Adjusted EPS is expected to come in between $1.85 to $2.10 for 2024.

The company aims to drive growth, increase efficiencies, and reduce costs. The COVID-19 pandemic increased customer demand for the food distribution business. The company has long-term targets set for fiscal 2025, which sees adjusted EBITDA of over $300 million and net sales of more than $10.5 billion.

SPTN has increased its dividend for 13 consecutive years. SPTN currently yields 4.4%.

Hawkins, Inc. (HWKN)

Hawkins is a diversified chemical company that specializes in manufacturing and selling value-added and bulk ingredients, chemicals, and services to industrial, manufacturer, and municipal customers. The company operates in three segments: Industrial (~50% of revenue), Water Treatment (~33% of revenue), and Health and Nutrition (~17% of revenue).

Almost all revenue is from the United States with 58 facilities in 26 states. Key brands are Stevia, Hereditium, Fermentalg, Lipfoods, Epax, Aquamin, Covico, Panmol, pomma, nippi, and the Enzymology Research Center.

Total revenue was $935.1M in fiscal year 2023. Hawkins reported Q3 FY 2024 results on January 31st, 2024. For the quarter, companywide revenue decreased 5% to $208.5 million, while diluted earnings per share rose 39% to $0.71 from $0.51 on a year-over-year basis. Industrial segment revenue fell 19% because of the sale of the consumer bleach packaging business and lower volumes. Water Treatment segment revenue rose 20% to $82 million on higher sales and prices, and acquisitions.

Since 2011, Hawkins has acquired 14 companies with 11 of those in water treatment. In 2023, the company acquired Water Solutions Unlimited, Miami Products & Chemical Company, and EcoTech, adding to its water treatment business. The strategy has proven successful over time, as operating income has grown for 23 consecutive quarters. Future growth is likely as demand for bulk and value-added chemicals, ingredients, and services continue to grow. In addition, many small chemical companies exist throughout the United States as acquisition targets, especially in municipal water treatment.

HWKN has increased its dividend for 19 years. Shares currently have a 0.9% dividend yield. The payout ratio is conservative at approximately 18%, leaving much room for future increases.

Atrion Corporation (ATRN)

Atrion Corporation develops and manufactures products for medical applications. The company's medical products are used in several fields, including cardiovascular, fluid delivery, and ophthalmic applications. Its fluid delivery products and cardiovascular products make up a large portion of overall sales. It also has ophthalmic products including medical devices that disinfect contact lenses.

On February 29th, 2024, Atrion Corporation announced its Q4 2023 results, posting non-GAAP adjusted diluted EPS of $3.65, compared to $4.70 for the fourth quarter of 2022, and total revenues of $43.6 million. The full-year figures showed a more pronounced downturn, with revenues falling 8% to $169.3 million and net income dropping 45% to $19.4 million, culminating in a diluted EPS of $11.02.

Management attributed the annual declines to global supply chain disruptions that impacted the production of key products and an inventory adjustment by OEM customers. Despite the setbacks, Atrion has a positive EPS growth outlook, with measures including maintaining workforce levels, renewing multi-year supply agreements, and expanding its product pipeline and factory capabilities. For 2024, Atrion expects a high single-digit revenue increase and an improvement in operating income in the second half of the year.

ATRN has increased its dividend payment to shareholders for 21 years. The company's five-year average payout ratio stands at 30.4%, and the company has been able to grow dividends at a compound annual growth rate of 48.6% during this time. ATRN stock currently yields 2.2%.

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