The Motley Fool

2 small-cap dividend stocks I’d buy and hold for the next decade

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Good quality small-cap dividend stocks can be great investments. In addition to an attractive income, their small size means that capital gains can be greater than with big-cap stocks.

Today I’m going to highlight two small dividend stocks I believe could be profitable long-term buys.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story. In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

A long-term cash machine?

Fulcrum Utility Services (LSE: FCRM) has two main sources of revenue. Much of the group’s income comes from building gas and electricity infrastructure for property developments, such as factories and housing estates.

However, the group is also licenced to own and operate gas and electricity distribution networks, such as those it builds and others it acquires. This business attracts me, as I believe it should provide long-term recurring revenue, in addition to the cyclical income from new-build projects.

Today’s half-year results suggest that both businesses are performing well. Revenue rose by 8.3% to £19.6m during the six months to 30 September, while pre-tax profit climbed 19.4% to £3.7m.

Fulcrum ended the period with an order book worth £33.7m, up by 11% from the end of March. Shareholders will be rewarded with an interim dividend of 0.7p per share, a 17% increase on last year’s payment.

How cheap is the stock?

Fulcrum shares have performed strongly this year and are no longer in bargain territory. But, I think the shares may still be attractive. The company hopes to expand its utility asset ownership, and is expanding its services in the area of electric vehicle charging infrastructure.

Consensus forecasts put the group on a forecast P/E of 16 for this year, with a prospective yield of 3.1%. This valuation is supported by net cash of £14.5m, which now accounts for around 12% of the share price. In my view, the stock remains worth buying.

A sustainable 9% yield?

A dividend of 9% is usually seen as a warning of problems to come. But once in a while, the market throws up a genuine opportunity to lock in a massive income.

I believe Connect Group (LSE: CNCT) could be one such stock. This group’s main business is the distribution of newspapers and magazines to retailers. It also has a parcel business, Tuffnells, and a specialist book-selling unit. Concerns about the group’s future focus on falling sales of newspapers. The company is hoping to adapt to this situation by finding other opportunities for early morning deliveries.

Last year’s results showed resilient trading. Although revenue and profits fell by around 3%, Swindon-based Connect generated earnings and free cash flow of around 11p per share, providing cover for its dividend payout of 9.8p per share.

That’s equivalent to a yield of 9%, at the last-seen share price of 109p.

Crucially, last year’s sale of Connect’s education division enabled management to reduce net debt from £141.7m to £82.1m. I see that as a fairly comfortable level of borrowing relative to the group’s profits, which are running at around £35m-£40m per year.

I’m considering a buy

The outlook for this year is fairly similar. Adjusted earnings of 16p per share put the stock on a forecast P/E of just 6.7, while a forecast dividend of 10p per share should give a yield of 9.3%.

I believe this valuation is probably too cheap, given the apparent stability of the group’s trading.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Roland Head owns shares of Fulcrum Utility Services. The Motley Fool UK has no position in any of the shares mentioned. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.