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How To Invest In Small-Cap Stocks in Canada

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If you are looking to boost your portfolio gains, one of the ways to do it is by investing in small-cap stocks.

While small-cap stocks can see drastic ups and downs compared to large-cap stocks, they’re relatively more stable than micro stocks. Many small-cap stocks belong to companies that are leaders in their niche industries and may outperform large-cap stocks in the long term.

Small-cap stocks come with better growth potential and attractive valuations. So, if you thought of small-caps as not worth your time until now, you may want to change tactics so you don’t miss out on some of the best-performing stocks.

In this article, we’ll share all that you need to know about small-cap stocks so that you can realize their potential and make a smart decision about your investments. Sometimes, thinking small is the way to make it big!

How To Buy Small-Cap Stocks In Canada

Buying stocks online has never been as easier. There are tons of trading platforms and online brokerages in Canada that allow you to buy stocks at much lower fees than the traditional options.

In Canada, the Toronto Stock Exchange (TSX) is the most popular stock exchange, which is also the 12th largest in the world, with nearly $2.25 trillion in total assets. Canadians also have easy access to trading securities on NASDAQ and NYSE exchanges, which are the top two in the world.

Wealthsimple and Questrade are two among the many popular online brokerages in Canada that you can use to purchase small-cap stocks.


Questrade, is one the best online brokerages overall thanks to its seamless user experience and competitive commissions rate. New customers can get free trades worth $50 when they open an account and add $1000. This Questrade Review should help you decide if it is the right choice for you.


Wealthsimple offers a robo-advisor-managed solution, meaning they pick investments for you and reinvest your dividends. For self-directed investors, the Wealthsimple Trade app caters to both beginners as well as passive traders. This review explains why it is so easy to get started with Wealthsimple.

The Best Small-Cap Stocks in Canada

Before we get to the list of best small cap stocks in Canada, let’s go over what small cap stocks are.

What are small-cap stocks?

Small-cap stocks are usually the shares of a public company whose total market capitalization is in the range of $300 million to $2 billion. These figures may vary and as the price of stocks rises, so does the valuation. This means the classification that distinguishes between a small-cap or large-cap company changes over time.

The market capitalization of a company is calculated by multiplying its current share price by the number of its outstanding shares.

Small-cap stocks have historically outperformed large-cap stocks due to being early in the game and requiring significantly less capital to move the prices. However, this also means small-caps are more volatile, hence riskier.

Some put start-ups or new companies into the small-caps category, but that’s not always true. Many companies that fall into the small-cap category are well-established businesses with great financials. They may just operate in niche markets. So keep this distinction in mind when choosing to keep or discard a small-cap stock.

Because these companies are smaller, their share prices have a greater chance of growth, especially if they have a strong track record.

This is why investors looking to generate higher returns on their investments are attracted to small-cap stocks before everyone knows about these niche companies or have experienced all the massive gains. Additionally, those with high-risk tolerance also tend to find small-cap stocks a suitable option.

Small-cap stocks also have a bad rep when it comes to dividend pay outs. Again, this entirely depends on the company you are dealing with. If the small-cap stock belongs to a fully mature company with good financials, then you may want to consider investing in it versus disregarding it simply because it is a small-cap stock.

So keep in mind the maturity of the company, returns, investment horizon and growth potential of a company before making a decision.

To have a balanced portfolio is it always a good idea to have a mix of small-caps stocks and some market-friendly investments to mitigate your risk.

Why should you invest in small-cap stocks in Canada?

As discussed above, small-cap companies sometimes offer more potential for growth than large-cap companies.

Large-cap companies with a market cap of $10 billion or higher are usually already past the aggressive growth phase and focus more on offering stability and dividends to their investors.

This is why small-cap stocks have historically outperformed large-caps. However, this also means that not only will the gains will be exaggerated, but the losses will be too, especially during the downturn phase.

So, as a small and individual investor, investing in small-cap stocks is the best option to benefit from the growth of those companies’ growth potential. You may want to build a meaningful position in these small-cap companies before they gain capital and thereby beat institutional investors to it!

The absence of major institutional investors, who have to adhere to certain limitations when investing in small-cap stocks, offers you an advantage over these investors and allows you to avail small-cap shares at fair prices.

You may also be able to get your hands at quality stocks at a lower price due to the inefficiencies of the market. Research and market evaluation will help you acquire quality stocks at a lower price before others come in.

While there are very clear reasons to invest in small-cap stocks, make sure that you are also taking into account associated risks in terms of less liquidity and, of course, volatility.

Then, once you have picked the stocks you want to invest in, choose just how many shares of a particular company you want to buy.

The Top 5 TSX small-cap stocks in Canada

So, what are some of the top small-cap stocks in Canada that you can invest in? Let’s take a look at those that trade on the TSX:

1. Dream Office REIT Stock (TSX: D.UN)

This real estate investment trust company with a market cap of $1.6 billion and a 5-Year CAGR of 12.2% is attracting investors with its above-average yields of 4.15%. While the pandemic has affected the growth rate of this company, it is gradually getting back into the game with an increased focus on ESG (environmental, social, governance) and has the potential to thrive once again as the economy recovers.

2. HIVE Blockchain Technologies Stock (TSX: HIVE)

This $910.2 million company is a crypto mining stock which is the perfect way to get a taste of the burgeoning cryptocurrency sector without directly holding crypto. While it is currently fluctuating in tandem with Bitcoin price, with a 5-Year CAGR of 116%, this stock shows great potential as a long-term holding.

3. Pollard Banknote Limited (TSX: PBL)

Pollard is Canada’s largest player in the charitable gaming and lottery market, which also operates in certain states in the US (accounting for approximately two-thirds of the revenue). The lottery sector is expected to grow at a 5.96% CAGR between 2021 and 2025 and this company is doing everything it can to get a piece of it. Pollard has a market cap of $942.6 million and offers a 0.46% annual dividend yield.

4. Extendicare Stock (TSX: EXE)

Catering to the senior populations, this small-cap stock has a market capitalization of $631.42 million. The company offers retirement communities and long-term senior care facilities in a stable market segment. It has a 5-Year CAGR of 0.9% and offers a high dividend yield of 6.81% at a stable pay out ratio.

5. Goeasy Ltd. (TSX: GSY)

This finance company boasts over one million customers and operations in all ten Canadian provinces. The company has surpassed a $2 billion consumer loan portfolio and features unsecured loans with a massive 45%+ interest rate. Its revenues have grown by 13% CAGR and net income by 28% CAGR in the last decade while offering a dividend yield of 1.87%. It’s market capitalization is $2.32 billion.

*All numbers as of 28 January, 2022

The Bottom Line

Market capitalization can play a significant role in diversifying and getting the most out of your investment portfolio. But by looking at young companies that are growing fast, you may just be investing in the future large-cap.

Small-cap stocks certainly have their advantages, but some diversification is advisable. Also, factor in your financial goals and investment horizon before investing.

You will need a sturdy risk appetite to weather market fluctuations, but proper asset allocation, portfolio balancing, and research to determine the effectiveness of an investment avenue will help you get the best of the small-cap stocks.

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