The Enduring Value of “Boring”: The Power of Small-Cap Dividend Growth Investing
The casino is back in North American markets. Today, many new (and a lot of old) investors want excitement.
Buffet recently wrote, “For whatever reasons, markets now exhibit far more casino-like behaviour than they did when I was young. The casino now resides in many homes and daily tempts the occupants.”
High flying markets provoke risk, but true wealth is created by patient investors in boring, beautiful businesses.
The resurgence of this casino-like behaviour appears to be driven by a new generation of investors—and a segment of old ones—who seek the thrill of high-flying assets over the steady, predictable returns of established businesses. The pursuit of rapid, often unrealistic, gains has provoked a recent series of speculative cycles, but as history consistently demonstrates, true and lasting wealth is built not through a lottery ticket but through patient investment in enduring, high-quality businesses.
The high cost of this pursuit of “fun” is illustrated by the 2020-21 proliferation and subsequent collapse of many Special Purpose Acquisition Companies (SPACs).
SPACs Created in the US Markets (2009-2025)
Here is a list of the number of SPACs created in the US markets, sorted by year:
Source: spacinsider.com
As shown, the number of SPACs surged in 2020 and peaked in 2021 before a sharp decline in subsequent years.
Fuelled by speculative excess during the rebound stage of the “global pandemic” these vehicles gained immense popularity, championed by high-profile figures who cultivated large public followings through social and traditional media appearances. The most notable of these, Chamath Palihapitiya aka the SPAC King, was widely seen as a champion of the retail investor. Yet, when the speculative fervour dissipated and the stocks he promoted collapsed, his now infamous response—telling investors there is “no crying in the casino”—was perceived as both dismissive and insensitive.
The collapse of these assets was stark and unforgiving SPACs Chamath backed, such as Virgin Galactic (SPCE), Opendoor (OPEN), and Clover Health (CLOV), saw their values plummet by 90% or more. Two of the companies, Proterra and Sunlight Financial, ultimately filed for bankruptcy. This pattern highlights a fundamental divergence in investment philosophies: one that profits from hype and one that builds through a partnership with quality businesses.
Unfortunately, Palihapitiya has launched a new SPAC called American Exceptionalism Acquisition Corp. A. The SPAC is seeking to raise $250 million through an initial public offering (IPO) and will be listed on the NYSE. The target sectors for this new SPAC are companies in areas that Palihapitiya considers critical for “American leadership,” including artificial intelligence (AI), decentralized finance (DeFi), defense technologies, and energy production.
Is History is Set to Repeat Itself?
The digital realm has also fueled this shift. Upstart online brokerages like Robinhood have, in some cases, gamified the serious business of investing. With features like mystery rewards and digital confetti to celebrate trades, these platforms create an environment where investing is treated like a video game. This psychological manipulation encourages frequent, emotionally driven trades rather than disciplined, long-term holding. This trend is mirrored in other speculative bubbles, such as the NFT craze of 2021, where people paid millions for digital images of lazy-looking apes. Since their peak, the value of assets like Bored Ape Yacht Club (BAYC) NFTs has crashed by 90% from all-time highs, with the entire market becoming significantly less active.
When it’s fun… it’s fun. Until it’s not. The music stops. Your seat is removed. Prices fall. And that fun turns into regret.
The Foundational Case for Dividend Growth Investing
The chaotic volatility of speculative assets stands in stark opposition to a far more reliable and time-tested wealth-building strategy: dividend growth investing.
A company’s ability to consistently pay and grow dividends is a strong indicator of financial health. It signals that the business is not only profitable but also confident in its future earnings and cash flow. Such a company is typically well-managed, resilient, and focused on long-term shareholder value.
The ultimate personification of this philosophy is Warren Buffett. His most celebrated investments are not in new technology or fleeting trends, but in “boring” businesses like Coca-Cola, railroads, and credit cards. His investment in Apple, for example, was made a decade after the iPhone’s release, long after the initial “excitement” had subsided.
Today, his portfolio generates nearly 4.5 billion dollars every single year. Whether the market went up or down.
A consistent stream of income regardless of market fluctuations. This example shows that patient, dividend-focused investing works on a massive scale.
The Small-Cap Advantage: Compounding Growth and Income
While Warren Buffett’s approach has been applied to large-cap stocks, the dividend growth philosophy is profoundly potent when applied to the small-cap arena. Small-cap stocks, defined as the bottom 7% of total U.S. market capitalization (typically $5 billion or less in the US / CAD$1 billion or less in Canada), are less often associated to the dividend growth investing strategy.
Small caps generally, offer a unique risk-reward profile. On the one hand, smaller companies often have more room for expansion and innovation within their niche markets, leading to the potential for substantial returns. At a basic level, it is easier to double earnings of $1 million to $2 million then to double earnings of $1 billion to $2 billion. (law of large numbers) However, the market often under prices small caps relative to similar larger companies. That means investors are typically getting better value for their investment dollar with the type of small-cap companies we recommend through our research service due to their growth potential, often not fully recognized by the market because of lack of analyst coverage.
On the other hand, small-cap stocks are often associated with heightened risk and volatility. Their smaller size makes them more susceptible to market shifts and economic fluctuations. The sector also includes a plethora of early stage, pre-revenue speculative start ups or exploratory and R&D based businesses with high risk profiles. To help mitigate a degree of this risk, KeyStone steers clear of this segment of the market, focusing our research on profitable, growing small cap stocks.
The genius of combining a profitable small cap focus with a dividend growth philosophy lies in its ability to bridge these two potentially market beating strategies. It is a deliberate counter-narrative to the prevailing investment mindset that demands either high-risk growth or low-growth stability. A dividend-paying small-cap represents a hybrid strategy—a blend of both value and growth. It allows investors to seek out overlooked companies with significant expansion potential while also providing a stabilizing dividend stream. This consistent income acts as a buffer against volatility and rewards patience, allowing the underlying business to execute on its long-term growth objectives without the emotional pressure that comes from daily price monitoring. By focusing on businesses that are essential, repeatable, and non-glamorous (boring is beautiful), a disciplined investor can find a significant advantage, often in areas overlooked by the broader market that is fixated on high-growth technology.
Case Studies in Boring, Beautiful Businesses
The theory behind this strategy is best illustrated through real-world examples. The following case studies demonstrate how patient investors in seemingly “boring” small-cap businesses have generated extraordinary returns over the long term.
Boyd Group Services (BYD): The Power of Consolidation
Boyd Group Services is a shining example of a “boring but beautiful” business model. As an auto body repair consolidator, its growth story is driven by a relentless expansion strategy. Since 2008, the company has grown from approximately 250 locations to over 1,000 across North America, fuelling a phenomenal total return for long-term shareholders.
For KeyStone clients who purchased this boring business on our BUY recommendation in November 2008 at a price of just C$2.30, the returns have been remarkable. Since that initial purchase, shareholders have received a total of C$8.69 in dividends alone, a return of 3.78x the original investment from income alone. Including both price appreciation and dividends, the total gain has been a staggering 10,081.24%.
The compounding power of the dividend is further illustrated by the “effective yield,” which calculates the annual dividend paid relative to the original purchase price. For patient investors, the effective yield is now a remarkable 26.61% each year—a continuous stream of income that continues to grow regardless of the daily stock price.
| Metric | Value |
|---|---|
| Initial Investment (Nov 2008) | $2.30 CAD |
| Total Dividends Received | $8.69 CAD |
| Return from Dividends Alone | 3.78x |
| Total Return | 10,081.24% |
| Effective Yield on Cost | 26.61% |
Hammond Power Solutions (HPS.A): Powering the Future of the Grid
Hammond Power Solutions is a prime example of a business that, while not flashy, operates in an essential and foundational industry. As a leading manufacturer of dry-type transformers, the company’s products are critical for electrical grids, data centers, manufacturing, and the rapidly growing renewable energy sector. This vital role has made it a resilient and enduring business.
For investors who followed KeyStone’s initial recommendation to buy the stock over two decades ago at C$0.60, the total return has exceeded 20,000%. Even for those who came to the stock more recently, the results have been extraordinary. Since KeyStone’s re-recommendation in March 2020 at a price of C$6.01, the company’s dividend has grown by 223.5%, culminating in a total return of 1,930% for investors who bought on the BUY recommendation.
| Metric | Value |
|---|---|
| Re-recommendation Price (Mar 2020) | $6.01 CAD |
| Dividend Growth | 223.5% |
| Total Return | 1,930% |
Brookfield Infrastructure (BIP.UN): The Global Infrastructure Backbone
Brookfield Infrastructure Partners (BIP.UN) provides a compelling case study on how the dividend growth philosophy can be applied to a larger, globally diversified entity. The company’s portfolio consists of a wide range of essential infrastructure assets, including utilities, data centers, and transportation. These businesses are characterized by stable, predictable cash flows, which are then distributed to unit holders.
For clients who purchased units on KeyStone’s BUY recommendation in March 2011 at a price of C$9.91, the investment has generated approximately C$25.86 per unit in dividends as of August 2025, resulting in a total return of 594%.
| Metric | Value |
|---|---|
| Initial Investment (Mar 2011) | $9.91 CAD |
| Total Distributions Received | ~$25.86 CAD |
| Total Return | 594% |
Note: Distributions are declared in USD and have been converted to CAD for this total.
Conclusion: Boring is Beautiful
Modern markets are often dominated by the pursuit of the next high-flying asset, the promise of a life-altering gain in a matter of days, weeks, or month. Economist Paul Samuelson famously stated, “one pays a price for excitement in investing. That price is often a portion of one’s capital and, perhaps more significantly, peace of mind.”
The “power of boring,” conversely, is not just a stock selection strategy but a holistic approach to wealth creation that prioritizes discipline and long-term vision. While most often applied to larger, more established companies, a dividend growth strategy can be very effective when applied to profitable, boring cash compounding small cap stocks. The returns demonstrated by companies like Boyd Group, Hammond Power Solutions, and Brookfield Infrastructure are not the result of fleeting trends or social media hype; they are the direct outcome of patient ownership in durable businesses that provide essential goods and services.
Quoting Samuelson one more time.
Samuelson knows that you pay for excitement in investing. He’s right—NFTs, crypto, meme stocks, most crashed.
Dividend growth stocks just keep paying you. When the market crashes, you don’t have to panic. You know those dividend checks are still coming in, because people will still fix their cars, buy toilet paper, Coke, gasoline, and groceries, and the world will still need transformers, and they’ll use their credit cards to pay for them all.
Boring works. So, if your small-cap portfolio feels boring, it means you’re doing something right.
Ready to cut through the hype? Become a KeyStone client today and gain access to our proven, independent research on profitable small-cap dividend growth stocks.
