3 Cheap Small-Cap Banks for Dividend Growth Investors

Key Points

• Plumas Bancorp is a small-cap bank with a big dividend, safe and reliable for 2025. 
• Unity Bancorp is well-positioned to sustain annual distribution increases indefinitely. 
• Community Trust Bancorp's high yield won't last long; analysts forecast higher prices, and institutions are already buying. 

The financial sector is booming, including small caps like Unity Bancorp NASDAQ: UNTY, Plumas Bancorp NASDAQ: PLBC, and Community Trust Bancorp NASDAQ: CTBI. The results from 2024 show consumers remain healthy, commercial volumes are improving, and higher-for-longer interest rates drive solid investment income. These stock prices are rising because of business trends and are likely to continue rising in 2025. 

These bank stock prices will continue to increase because the outlook for all three industry segments remains solid, including cash flow and profits. The Fed is unlikely to cut interest rates by more than 25 basis points, leaving rates elevated relative to 2024 year-end forecasts, driving net investment income. The labor market and consumer trends remain healthy, and economic tailwinds are expected to develop, driving consumer and business activity. Trump’s pro-growth agenda is expected to drive activity at all system levels, which is good news for the banking industry. 

Higher Rates, Resilient Consumers, and Commercial Activity Drive Business

All three reported solid quarters for calendar 2024, with revenue and earnings growing. NII was a contributing factor in all cases, and CTBI stood out. It reported a 15% increase in net investment income and outperformed in other metrics, too.

Business for the group was also driven by improvement in loans and deposits in retail and commercial segments. The guidance for 2025 includes an expectation for improved loan demand and confidence in the ability to continue generating profitable growth. 

The analysts' forecasts for 2025 are robust. These companies are expected to grow top and bottom-line results, and the estimates are likely cautious. The standout in 2025 will likely be Plumas Bancorp, the smallest bank on the list, forecasted to grow revenue by 15% and widen its margin. 

Cash Flow and Capital Returns Are Growing 

Among the critical details are capital returns. These banks have healthy balance sheets with sufficient credit loss provisions to weather the increased volatility in consumer markets. Credit write-offs have increased but remain at healthy levels, leaving cash flow unimpaired and capable of sustaining dividend distributions.

The yields in early Q1 2024 run from 1.2% for Unity to over 3.5% with Community Trust Bancorp, but all are attractive. The trade-off with yield is a higher payout ratio, but even the highest, again Community Trust Bancorp, is low, relatively speaking, and under 45%. The lowest yield is Unity, but it is also the safest payout. Unity’s payout ratio is less than 15% relative to current forecasts. 

Analysts and Institutions Like These Small Banks

None of these stocks has a lot of analyst coverage, but group coverage is sufficient to paint a bullish picture. Five analyst firms cover these stocks, two each for UNTY and PLBC and three for CTBI, and there is overlap. Firms with coverage include Stephans, Raymond James, and Piper Sandler, who all rate them as Buys. The price targets are also bullish, forecasting mid-single to mid-teen advances in 2025.

Regarding the institutions, institutional activity is mixed from name to name and quarter to quarter, but three things are valid in all cases. The institutions own significant amounts of these stocks, 40% to 60%. They bought on balance in 2024, and activity was bullish in Q3 2025, aligning with updrafts in the stock prices. The charts show these stocks gaining traction in the second half of 2024 and set up to advance in 2024.