Among 5 Small-Cap Dividend Dynamos, 1 Stands Out

Big-name dividend payers are getting all the attention these days. That's all fine and good, but the more people know about a stock and its dividend, the more likely they are to bid shares up.

That's not necessarily the case with unloved small-cap stocks. Today, I'm going to introduce you to five small companies showing their shareholders the money with outsized dividends. Read to the end and I'll also offer you access to a special free report on 11 of our favorite dividend stocks at The Motley Fool.

First, just the numbers
After a bit of searching and screening, I came up with five excellent dividend-paying prospects. Below I've listed my five candidates, their yields, and their payout ratios.

Source: Yahoo! Finance.

At first blush, some may be rightfully worried about Otter Tail and Consolidated, as they both have paid more out in dividends over the last 12 months than they have made in net income.

But the story doesn't end there. Because companies use the accrual method of accounting -- which includes changes for accrual, depreciation, and amortization -- net income doesn't necessarily represent money-in-hand.

Instead, we can use free cash flow to measure whether or not Otter Tail or Consolidated are paying out too much. And by those measures, Otter Tail and Consolidated used up only 38% and 52%, respectively, of their free cash flow to pay their dividends -- both very safe ratios.

A closer look at the candidates
Otter Tail has an iron in several different fires, with investments in electrical operations, plastics, manufacturing, health services, and food processing. In a way, it's a small-cap conglomerate, with electrical production serving as the backbone of the company. Fellow Fool Anders Bylund highlighted the company -- and its similarities to Berkshire Hathaway -- earlier this year, saying it is "showing muscle in all the right places."

PDL is in the business of collecting royalties on the drugs it has patents on. A lot of the money that the company collects is passed on to shareholders through its outsized dividend. But Fool Jim Royal does offer a word of caution for investors: The patents on PDL's drugs run out in 2014, and without any moves by management, that could be a huge value destroyer.

Sinclair Broadcasting focuses its efforts on providing broadcasting services to 58 television stations in 35 markets across the United States. The company has been expanding its reach lately, moving into selected Florida, New York, and Midwest markets. Hedge funds also seem to think that the company's current payout ratio is easily sustainable.

Consolidated is a telecom company providing service to rural Illinois and Texas customers. Fool Anders Bylund kicked the tires on Consolidated a little over a year ago, saying the company is "about as squeaky-clean a business as you'll find among high-dividend payers." But investors do need to be wary of the company's shrinking revenue, as it is down 5.6% over the past year.

Finally, RadioShack may be as out-of-style as a company can get, but that doesn't mean there isn't value to be had. In fact, Rising Star Anand Chokkavelu bought shares of the company back in February, and went back for seconds in November, saying, "at a forward P/E ratio of 9, the market isn't giving RadioShack much credit for its past operational competence, its Verizon deal, or its solid balance sheet."

If I had to pick one of these stocks that I'd consider a good deal, it would be Otter Tail. I love the dividend, and how the company's not working against long-term trends like mobile technology (Consolidated) or electronic commerce (RadioShack). For that reason, I'll be initiating a CAPScall on my profile for Otter Tail.

Don't overlook these dividend payers, either.
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