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2 bargain small-cap dividend stocks I’d buy today

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Tarsus Group (LSE: TRS) provides business-to-business services — exhibitions, conferences, and that kind of stuff. And it’s provided investors with a 70% share price appreciation over five years, to 306p.

But dividends are what drew me to Tarsus, with their progressive nature. Yields are around 3.5%, a bit ahead of the FTSE 100 average, but the annual cash has grown from 6.8p in 2012 to 9.1p in 2016 — a 34% rise in four years, and way ahead of inflation.

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Forecast hikes would take it to 10.3p by 2018. And if you’d bought Tarsus shares at the start of 2012, the forecast 2018 dividend would yield an effective 7.4% on your purchase price — and that’s what progressive dividends are all about.

In a trading update Thursday, Tarsus told us its busier second half was doing well, with strong performances at major events and buyers up 7%. Like-for-like bookings for the full year are up 8%, “promising another strong year.” And with the Dubai Airshow still to come, I can see full-year figures being in line with current forecasts.

Lumpy

That would suggest a 75% rise in earnings per share (EPS), which would drop the P/E multiple to under 11, which I think is pretty undemanding — but I do see a clear reason for the low valuation.

The thing is, the nature of Tarsus’s business, relying heavily on large trade shows and major exhibitions, means its profits are erratic. We’ve seen up years alternating with down years, and the same looks set to come — 2018 should see EPS dropping by 32%.

But the long-term earnings trend is steadily upwards, and those very well-covered dividends make me think the current share price is well worth paying.

Investment cash

Another progressive dividend stock I like is Brewin Dolphin Holdings (LSE: BRW), whose payment hikes have been easily beating inflation. Between 2012 and 2016, the dividend was raised from 7.15p to 13p, for an 80% uplift — and City analysts have rises to 16.2p pencilled in by 2018.

Cover by earnings has admittedly dropped in that period, with a figure of around 1.3 times on the cards for 2018, but that doesn’t unduly worry me at this stage.

At Q3 time, the investment manager told us that total funds had risen in the quarter by 3.7%, to £39.2bn. It also enjoyed record income of £77.3m (up 8.4% on the same period last year), with fee income up 16% to £55m, though commission income fell 11% to £16.7m.

Brewin Dolphin acquired Duncan Lawrie Asset Management in May, and chief executive David Nicol reckons the integration is going well. Mr Nicol also spoke of “delivering against our long-term growth strategy,” saying that “confidence in the future is underpinned by our robust financial position.

What value?

On the fundamental valuation front, a forward P/E of 18.5 (against a predicted EPS rise of 8%) might look a bit high to some, but further growth of 15% indicated for 2018 would drop that to around 16.

Some may also fear that the firm’s recent strong performance has been on the back of the weakness of sterling which has added apparent strength to the stock market (that is essentially valued in US dollars), but I see more than that.

Brewin Dolphin looks to me like a very well managed company with a long-term view, and companies of that nature deserve to command an above-average valuation.

At 353p, I see the shares as a good long-term income prospect.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Tarsus Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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