Looking to boost your portfolio gains? Sometimes, thinking big isn’t the answer, when you should be thinking small.
It’s true that a very low or rapidly dwindling market cap might spell trouble, but there are many benefits to investing in smaller companies.
And if you have stayed away from small-cap Canadian stocks till now simply because you think they might not be worth it, this list of some of the best small-cap stocks in Canada might help you realize what you are missing out on.
What Are Small-Cap Stocks?
Before we get to the small-cap stocks in Canada, you should understand what small-cap stocks are.
If we go by the accepted international practice, or at least the thresholds used in the US (endorsed by Forbes and Investopedia), define small-cap stocks as stocks with a market capitalization between $300 million and $2 billion. The category above it is mid-cap, and below are micro-cap stocks.
For Canada, the definitions vary a bit. Mackenzie Investments put small-cap stocks between $100 million and $1.5 billion in market capitalization. However, a more authentic and relatively pure source, S&P Global offers a slightly different picture.
The minimum market cap in the S&P/TSX SmallCap Select Index is slightly over $200 million, whereas the largest is about $2 billion.
This is quite close to the US practice. For this article, I stuck to the $300 million to $2 billion market-cap thresholds. That alone is an extensive pool and includes hundreds of amazing securities. Fifteen of which (along with some honourable mentions) should definitely be on your radar.
The Best Small-cap Canadian stocks
The stocks below are mixed between growth and dividend stocks and are in the order of the market cap (from highest to lowest). Unless otherwise specified, all the stocks below trade on the senior exchange (TSX).
Birchcliff Energy Stock
- Ticker: BIR.TO
- Forward Dividend Yield: 0.74%
- Dividend Payout Ratio: 2.40%
- Dividend Yield (12-Month Trailing): 0.69%
- Upcoming Dividend Date: Mar 31, 2023
- Market Cap: $2.31 Billion
- Forward P/E Ratio: 5.39
- Average Analyst Rating: 2.0 - Buy
With a yield lower than the interest you can get from some digital bank, Birchcliff might not look like one of the “best” small-cap energy stocks in Canada.
But the stock is capable of great growth when the timing is right, and the sector is booming.
- From the crash valuation to the peak, the stock rose almost 960% post-pandemic.
- It focuses on both oil and natural gas, making it a relatively less risky energy security for a green future.
- It’s a great bet for cyclical growth, but most other times, it might remain dead weight in your portfolio. So, a hefty investment is not recommended.
Exchange Income Stock
- Ticker: EIF.TO
- Forward Dividend Yield: 5.24%
- Dividend Payout Ratio: 89.69%
- Dividend Yield (12-Month Trailing): 4.27%
- Upcoming Dividend Date: Feb 15, 2023
- Market Cap: $2.34 Billion
- Forward P/E Ratio: 14.17
- Average Analyst Rating: 1.8 - Buy
EIF is an acquisition-oriented company in the airline industry. It has a geographically and categorically diverse portfolio of acquisitions. The company has been around for two decades and has already seen two major market crashes.
- It’s a resilient dividend aristocrat with a good yield and stellar dividend history.
- The growth history is not smooth, but the long-term growth potential is better than nonexistent.
- It’s a stable business that offers a decent mix of dividends and capital appreciation.
- The diversified portfolio of assets endorses relative financial stability.
Dream Office REIT Stock
- Ticker: D-UN.TO
- Forward Dividend Yield: 6.47%
- Dividend Payout Ratio: 30.88%
- Dividend Yield (12-Month Trailing): 5.87%
- Upcoming Dividend Date: Feb 15, 2023
- Market Cap: $772.80 Million
- Forward P/E Ratio: 20.44
- Average Analyst Rating: 2.5 - Buy
Most REITs attract investors via their above-average yields, but this one offers a powerful combination of both. While its post-pandemic growth is a stark contrast to its pre-pandemic growth, the potential is still there.
The underlying asset class (office properties) has the potential to thrive when the economy is booming, and more jobs are being created.
- The REIT has a futuristic approach towards portfolio building and a strong focus on ESG, something that might pay off well in the future.
- It tends to move in tandem with an overall bull market (which is understandable considering its asset focus).
- The company has pushed its dividends down to sustainable levels (even during harsh market conditions), and it might increase its payout if revenues see enough growth.
HIVE Blockchain Technologies Stock (TSXV)
HIVE Blockchain is more than just a crypto mining stock. The company focuses on the underlying technology (Blockchain), which means even if Bitcoin is regulated in the future or becomes more than just an investment asset, the company might still remain profitable.
For now, its stock fluctuates in tandem with Bitcoin value, which can offer amazing growth opportunities.
- It can be a good long-term holding if you buy it when Bitcoin hits rock bottom.
- It has potential to offer staggering growth. It returned about 3,300% to its investors in the most recent spike.
- Highly volatile stock. Great as a high-risk, high-reward holding.
Park Lawn Corporation Stock
- Ticker: PLC.TO
- Forward Dividend Yield: 1.79%
- Dividend Payout Ratio: 46.53%
- Dividend Yield (12-Month Trailing): 1.16%
- Upcoming Dividend Date: Jan 16, 2023
- Market Cap: $915.54 Million
- Forward P/E Ratio: 18.25
- Average Analyst Rating: 2.0 - Buy
If you are looking for a small-cap stock that offers consistent and sustainable growth, this stock is a good candidate.
The company is in the grim cemetery and funeral service business, which unfortunately is also an ever-green business, making the company’s financials secure and growth realistic. It’s the only publicly-traded company (in Canada) in the funeral business.
- It’s a financially strong and relatively stable business with good long-term prospects.
- The company has a well-diversified (geographically) portfolio of properties: 127 funeral homes and 130 cemeteries.
- The growth has been relatively consistent for about a decade, and the current valuation and its presence in the industry indicate that it might continue for a long time.
Endeavour Silver Stock/ Fortuna Silver Mines Stock
Either of the two stocks would do well as the “token” silver small-cap stock in your portfolio. Both have their individual strengths and weakness, but like most gold mining stocks, the stock movement is governed mostly by the demand and supply of the underlying metal, i.e., silver.
- Silver is more volatile compared to gold, which might result in sharper stock spikes.
- Both stocks have spiked at least twice in the last ten years, resulting in three-digit capital appreciation.
- EDR’s growth has been more aggressive compared to FVI’s.
7. Mainstreet Equity Stock
Mainstreet Equity offers you a different kind of exposure to the housing market/residential rental business compared to a REIT. It’s probably also the reason the company doesn’t offer dividends since it’s not obligated to do so as a REIT. It offers boutique rental apartments in Western Canada.
- The portfolio is diversified and extensive: over 15,900 consolidated in 383 properties, spread out in 17 cities.
- The company acquired and renovated old rental units. And since it doesn’t pay any dividends yet, it’s likely investing a hefty portion in acquisition-driven growth.
- Its growth potential, while powerful, relies on the housing market, which might not always be as strong as it’s now.
Sienna Senior Living Stock / Extendicare Stock
- Ticker: SIA.TO / EXE.TO
- Forward Dividend Yield: 7.97% / 7.11%
- Dividend Payout Ratio: 298.09% / 4,800.00%
- Dividend Yield (12-Month Trailing): 7.72% / 7.31%
- Upcoming Dividend Date: Feb 15, 2023 / Feb 15, 2023
- Market Cap: $891.56 Million / $558.19 Million
- Forward P/E Ratio: 33.05 / 27.71
- Average Analyst Rating: 2.2 - Buy / 3.0 - Hold
It’s another pair of eerily similar small-cap stocks and can be lumped together because of their considerable overlap. Both cater to senior populations. Both offer retirement communities and long-term senior care facilities, though Extendicare’s portfolio is slightly more extensive.
- Both stocks offer minimal capital appreciation potential.
- Both offer high yields at stable payout ratios.
- The companies are in a stable market segment, especially considering the rising senior population.
Alaris Equity Partners Income Trust Stock
- Ticker: AD-UN.TO
- Forward Dividend Yield: 7.93%
- Dividend Payout Ratio: 43.71%
- Dividend Yield (12-Month Trailing): 7.36%
- Upcoming Dividend Date: Jan 16, 2023
- Market Cap: $812.34 Million
- Forward P/E Ratio: 8.46
- Average Analyst Rating: 2.2 - Buy
Alaris is an equity company. It provides cash and takes up equity in businesses that require financial assistance without giving up control. Alaris’ interest in the businesses it invests in is mostly financial.
This is a powerful strategy that worked well in the company’s favour after the great recession and triggered a powerful bull run.
- The yield is powerful, though the company switched from monthly to quarterly dividends.
- Alaris is more vulnerable during a financial crisis compared to many other businesses since its capital is tied to relatively small businesses.
Timbercreek Financial Stock/Atrium Mortgage Stock
- Ticker: TF.TO / AI.TO
- Forward Dividend Yield: 8.76% / 8.02%
- Dividend Payout Ratio: 132.69% / 89.11%
- Dividend Yield (12-Month Trailing): 8.79% / 8.09%
- Upcoming Dividend Date: Feb 15, 2023 / Feb 10, 2023
- Market Cap: $667.60 Million / $490.71 Million
- Forward P/E Ratio: 10.32 / 10.82
- Average Analyst Rating: 2.4 - Buy / 2.0 - Buy
These two small-cap stocks are eerily similar. Both are technically real estate investment companies, though Timbercreek Financials lean more toward small-duration financial solutions while Atrium offers custom mortgage solutions tailored to the clients’ needs.
Timbercreek caters exclusively to commercial real estate while Atrium offers mortgage solutions to both, though a relatively small portion of its portfolio is made up of purely residential loans.
- Both offer a high yield with a relatively healthy payout ratio.
- The capital growth potential is decent enough and sustainable for both companies.
- They have minimum exposure to the dangerously hot housing market.
Rogers Sugar Stock
- Ticker: RSI.TO
- Forward Dividend Yield: 5.95%
- Dividend Payout Ratio: 83.72%
- Dividend Yield (12-Month Trailing): 6.3%
- Upcoming Dividend Date: Feb 01, 2023
- Market Cap: $601.18 Million
- Forward P/E Ratio: 13.71
- Average Analyst Rating: 3.0 - Hold
Rogers Sugar is purely a dividend stock, but it’s one of the best Canadian small-cap stocks for more than just its dividends. Rogers is the largest producer of refined sugar in Canada and the largest maple syrup producer in the world.
Even though it’s a small market, this kind of competitive edge in a relatively niche market space is unlikely to go away anytime soon.
- The company offers a high yield, and its dividends are quite sustainable.
- Its well-defined competitive edge within its industry might allow it to grow in the industry that ever gets too much investor/mainstream attention.
- It’s a household name, i.e., a more publicly visible business than most others.
MCAN Mortgage Stock
- Ticker: MKP.TO
- Forward Dividend Yield: 8.65%
- Dividend Payout Ratio: 90.45%
- Dividend Yield (12-Month Trailing): 9.18%
- Upcoming Dividend Date: Jan 03, 2023
- Market Cap: $536.20 Million
- Forward P/E Ratio: 8.23
- Average Analyst Rating: 2.0 - Buy
As a federally-regulated loan company, MCAN has more credibility compared to many other non-bank lenders. It’s funded by CDIC-eligible term deposits. It has a healthy portfolio divided between commercial and residential loans, though it leans more towards the latter.
MCAN is a powerful dividend stock, and unless a lot of borrowers start defaulting on their loans, the dividends will remain sustainable.
Xebec Adsorption Stock
Xebec adsorption is a monstrous growth stock, but it’s a promising small-cap stock (possibly, one of the best) because of the nature of its business: Cleantech solutions.
The company offers a variety of “clean” solutions, like biogas purification, renewable gas infrastructure, and hydrogen purification and generation. It’s a market segment that has explosive potential alongside EVs when it comes to clean vehicles.
- It has an impressive international presence, giving it multiple potential markets to tap into.
- It can see a multi-faceted growth in the cleaner/greener future.
Terravest Industries Stock
- Ticker: TVK.TO
- Forward Dividend Yield: 1.62%
- Dividend Payout Ratio: 18.87%
- Dividend Yield (12-Month Trailing): 1.45%
- Upcoming Dividend Date: Jan 10, 2023
- Market Cap: $490.36 Million
- Forward P/E Ratio: 35.26
Terravest is definitely one of the best small-Cap energy stocks in Canada, even though it’s technically not an energy stock.
It’s an energy infrastructure and industrial stock which makes different equipment used primarily in the energy industry, but it also caters to B2C markets. It makes containers and storage equipment and offers specialized transportation solutions.
- It offers powerful and sustainable growth.
- The company is diversifying its product portfolio and reducing its reliance on the energy sector.
- It’s usually cheaper/better value compared to growth stocks that offer similar growth.
There are a few stocks that are strong candidates for the best small-cap Canadian stocks.
- Global Water Resources (GWR): Decent growth stock, stable business.
- Canoe Income Fund (EIT.UN): Diversified high-yield growth fund.
- NanoXplore (GRA): Graphene company, proprietary tech, can be a powerful growth project if its market explodes.
- Fiera Capital (FSX): High-yield asset management firm
- Nexus REIT (NXR.UN): Previously a high-yield stock.
- Sangoma Technologies (STC): Stable and powerful growth stock
- BTB REIT (BTB.UN): High-yield commercial REIT
- Inovalis REIT: European office portfolio. High-yield REIT.
- GreenPower Motor Company: Decent growth potential when large EV vehicles (buses and cargo trucks) take off.
Small-Cap Growth Stocks vs. Small-Cap Dividend Stocks
Many investors need to understand that market capitalization, especially in new companies, often corresponds to the growth phase the company is in. In the early days, the company usually has a lower market capitalization than when it reaches saturation point/maturity.
But that’s not always the case. Many small-cap stocks represent fully mature companies in relatively niche markets that don’t support enough growth to push the company into mid-cap or higher. So always identify which is which before disregarding a growth stock with decent potential simply because it’s small-cap.
When it comes to dividends, people tend to distrust small-cap stocks even more. Again, it should be taken into contrast against the company’s financials and maturity.
If it’s a mature, healthy business with consistent financials and sustainable dividends, the market capitalization shouldn’t prevent you from investing in a decent small-cap dividend stock.
Simply put, while market capitalization is something important that you should look into before making an investment decision, it’s not the only thing you should look at. Consider it against the backdrop of the company’s financials, age, business prospects, growth potential, and other important factors and metrics.
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Keep your investment goals in mind when researching for the best small-cap Canadian stocks, and buy what’s fundamentally strong and fits your investment goals/strategies.