Individual investors have a key advantage compared to their institutional counterparts -- their opportunity set is much larger. Investing in small-cap stocks, which have a market capitalization between $300 million and $2 billion and are generally too small for investors like Warren Buffett, can be lucrative for retail investors.

Small caps have historically outperformed large-cap stocks like the S&P 500 in bull markets. Income investors will be happy to learn that some smaller companies pay dividends, ranging from high-yield value stocks to faster-growing small-cap stocks.

Below, we'll take a look at five of the best small-cap dividend players available on the market. 

 Company Ticker Market Cap Dividend Yield
Calavo Growers (NASDAQ:CVGW) $1.17 billion 1.7%
Macerich (NYSE:MAC) $1.13 billlion 8.2%
B&G Foods (NYSE:BGS) $1.7 billion 7.2%
PetMed Express (NASDAQ:PETS) $659.5 million  3.9%
Smith & Wesson (NASDAQ:SWBI) $921.8 million 1.2%

1. Calavo Growers 

Calavo Growers may not be a household name, but you're likely familiar with its core product: avocados. Calavo, whose name comes from the first three letters of "California" and "avocados," is a leader in the global avocado industry, which has boomed over the last decade as the fruit has become a popular choice among millennials in dishes like avocado toast and guacamole. It is considered a "superfood" by some. And the growing Hispanic population in the U.S., which is expected to double by 2050, is set to drive growth in avocado consumption, as the tropical fruit is a staple food for many Hispanics.

Calavo stock followed breakout growth in avocados for much of the last decade as shares jumped as much as 400%, a rarity for an agriculture business. The stock has pulled back since the end of 2018, however, as avocado prices have fallen and it's faced some challenges related to the COVID-19 pandemic. Because it's a grower, results at Calavo, which also produces tomatoes and papayas, tend to fluctuate with market prices, but the company is a stable dividend-paying stock. 

Calavo currently pays an annual dividend of $1.10, last paid out in November 2019, and has a history of raising it most years by roughly 5%-10%. Given the challenges of COVID-19, investors may not get a dividend hike this year, but management has proven its commitment to long-term dividend growth. Based on last year's results, Calavo had a dividend payout ratio of 53% using net income, and even less based on free cash flow, so investors can rest assured that the dividend is well funded.

With promising long-term growth potential from exposure to the avocado market and a solid track record of dividend increases, Calavo looks like a good bet for investors looking for both income and growth.   

Series of upward arrows with man in suit touching one.

Image source: Getty Images.

2. Macerich 

Macerich is a real estate investment trust (REIT), a company required to pay 90% of taxable profits to investors, that is involved in the acquisition, management, and leasing of shopping centers throughout the United States, with a primary presence on the West Coast and in Arizona, Chicago, and the corridor from New York to Washington, D.C. As of March 31, the company had an ownership interest in 52 locations totaling approximately 51 million square feet of available space.

Macerich's strength lies in the quality of its tenants, which include names like Apple, lululemon athletica, and Tesla as well as attractive dining and entertainment options and even coworking spaces. Additionally, a major component of the company's growth strategy is the redevelopment of older department stores into newer mixed-use projects.

Over the past five years, portfolio occupancy rates have stood at 94% or above. And from 2016 to 2019, dividends and sales per square foot have increased each year. These numbers are impressive by any measure and demonstrate the quality of Macerich's portfolio.

REITs are valued based on their funds from operations (FFO), a measure of cash flow that adds back depreciation and amortization charges and subtracts any gains on property sales. This measure is used to get a true picture of operating performance, and Macerich now trades at less than three times its trailing-12-month FFO, a bargain price given the metrics above.

Due to pent-up demand from shoppers hoping to venture back out once the pandemic ends, Macerich should recover, and investors can take advantage of the 8% dividend yield.

3. B&G Foods

If you're looking for a reliable small-cap dividend payer, B&G Foods certainly looks like a good candidate. The eponymous maker of pickles and condiments and parent of brands including Ortega, Green Giant, Cream of Wheat, and Weber grills has proven its mettle during the coronavirus pandemic as a recession-proof consumer staples stock, demonstrating a defensive positioning that's ideal for dividend stocks.

B&G has a paid a dividend every quarter since its IPO in 2004, and the company today offers a dividend yield of 7.1%, a better payoff than most consumer staples options. Because it's a company in a slow-growing industry, most of the returns to investors are likely to come from dividends, and management says that it plans to allocate a "substantial portion" of its cash flow to dividends. In 2018-2019, nearly all of its operating cash flow went to quarterly payouts, though that's in part due to a one-time $44.7 million tax charge related to the sale of Pirate Brands. 

Like other packaged food companies, B&G aims to grow through acquisitions, and in recent years the company has acquired brands such as Clabber Girl, McCann's Irish oatmeal, Back to Nature Foods, and Victoria's Fine Foods.

As a high-yielding, recession-proof staple, B&G looks like a good choice for investors looking for a stable stock with a generous dividend payout.

4. PetMed Express

Like packaged foods, pet products are recession-proof, and spending on pets has actually been shown to increase during tough times. The early months of the pandemic spurred a spike in pet adoptions that should benefit PetMed Express over the long run. The online pet pharmacy operates as and 1-800-PET-MEDS and calls itself the country's largest pet pharmacy. 

The company has more than 2 million customers and is the online leader in a $5.5 billion industry. Most of those customers are repeat visitors that will stay with the company for years, giving it a reliable source of revenue and high lifetime value from its customer base. Historically the company has operated at double-digit operating margins, and continued growth should allow it to better leverage its operating costs.

PetMed Express has paid a dividend every quarter since 2009, increasing it most years. Its current dividend yield of 3.9% makes it a solid choice for a reliable income stream. Based on fiscal 2020 results, the company had a dividend payout ratio of 84.4%, but just 60% based on free cash flow, so the dividend looks sustainable.

Looking at its track record of dividend growth, the boost in online pet products from the pandemic, and the defensive characteristics of the industry, PetMed Express is another good candidate for a small-cap dividend stock.

5. Smith & Wesson

Love 'em or hate 'em, guns are big business in the U.S. and worth considering as a source of dividend income. Like some of the stocks above, handgun-maker Smith & Wesson tends to thrive in difficult times as social upheaval, especially the kind we've seen in 2020, often leads to a run on guns. The social unrest that swept the country following the killing of George Floyd led Smith & Wesson's sales to more than double in the quarter, and its performance could remain elevated, given the high level of uncertainty around the coronavirus pandemic, the economy, ongoing protests, and the upcoming election. A win by Joe Biden would likely favor Smith & Wesson as well, as gun sales tend to go up when Democrats win the White House due to fears of gun regulation.

Meanwhile, Smith & Wesson gives you the security of a brand that dates back to 1852. The company, which was recently spun off from American Outdoor Brands in a move that made it a pure-play firearms seller, is only a modest dividend payer, offering a yield of 1.2%, but the company has tremendous potential to grow its payout, especially if sales stay strong. Smith & Wesson initiated a cash dividend of $0.05 in the most recent quarter, but it reported adjusted earnings per share of $0.97 in that quarter. Though sales were boosted by unique circumstances, those profits should encourage dividend investors, especially given the uncertainty ahead.

Smith & Wesson is off to a great start as a stand-alone company, and this timeless business should offer strong dividend growth in the years ahead.