When searching for yield, most investors focus their attention on large-cap shares. However unbeknown to many, it’s possible to find reliable dividend payers in the small-cap area of the market that punch above their weight. Here’s a look at two small-cap dividend growth stocks that pack a hefty punch and that I currently have my eye on.
Numis CorporationÂ
£295m market cap Numis (LSE: NUM) is an independent institutional stockbroker and corporate advisor. The firm offers a broad range of services to its clients including investment research, execution, corporate broking and advisory services. Â
Its financials look quite impressive, with the company exhibiting a strong operating margin (29%), excellent return on equity (22%) and low levels of debt. And revenue has increased from £54.2m in FY2011 to £112.3m for FY2016, a compound annual growth rate (CAGR) of 15.7%.
But what really appeals to me about this small-cap company, is its dividend growth track record. Indeed, since paying a maiden dividend of 0.8p in 2000, the company has never cut its payout, even during the Global Financial Crisis. Last year Numis paid out 12p to its shareholders, equating to a yield of a generous 4.6% at the current share price. Furthermore, over the last five years alone, the dividend payout has been increased from 8p to 12p, a CAGR of an impressive 8.5%. And the dividend is covered 1.9 times, indicating a decent margin of safety if profitability was to decline.
FY2016 numbers were good, with revenue jumping 15% on last year, earnings increasing 21% and the company’s cash pile growing from £60m to £90m. However, despite the firm’s impressive numbers, Numis shares can be purchased on a forward-looking P/E ratio of just 10, which looks attractive to me given the company’s impressive dividend history. It’s worth noting that the shares have jumped from just over 200p a year ago to 260p today, but despite the rise, I still think value is on offer.
Low & Bonar
Another company that has done well recently is £265m market cap Low & Bonar (LSE: LWB). While the performance materials group doesn’t have the same kind of impressive recent revenue and earnings growth as Numis, its dividend growth history is still quite virtuous. Â
Indeed, the company has grown its dividend payout at a CAGR of 7.4% over the last five years, paying out 3p per share last year – a yield of 3.7% at the current share price. On earnings of 6.15p per share, dividend coverage is a respectable 2.1 times.
The group released a concise trading statement last week for the period since 30 November 2016, stating that it had made a good start to the year and that the board continues to believe that 2017 will be a year of “significant progress.”
The share price shot up as a result and has now risen 34% over the last 12 months, however with City analysts forecasting earnings per share of 7.3p for this year, the stock trades on a P/E ratio of just 11.1, which doesn’t look expensive to me.