Two top growth dividend small-caps that could be millionaire-makers

These stellar small-caps are richly rewarding their shareholders thanks to fast-growing sales, profits and dividends.

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Over the past five years the share price of storage locker provider Lok’n Store (LSE: LOK) has risen over 160%, far outstripping the gains of small-cap indices such as the FTSE AIM All-share Index and FTSE SmallCap Index. On top of stellar share price returns, Lok’n Store shareholders are also enjoying growing dividends that currently yield a respectable 2.5%.

Looking ahead, I see good reason to believe this £120m market cap firm can continue to grow its business, juice dividends and deliver continued earnings growth. A good part of my bullishness comes from the bright outlook for the self storage industry as a whole, which is growing rapidly thanks to Britons both buying more things and also spending more time in small flats rather than relatively more spacious homes.

Increased demand for self storage space is clear in Lok’n Store’s full-year trading update released this morning. For the year to July 31, the group saw its occupancy rates rise 7.7% while the price it charged per square foot increased 0.5%. On top of this strong growth from existing locations, the group also expanded significantly by opening three new stores in the year and purchasing five others.

There’s also good potential for future growth as the group increased its access to credit facilities while still keeping the balance sheet in good health with a loan-to-value ratio of just 16.8% as of January 31. Furthermore, the business itself is highly profitable with EBITDA of £3.85m generated in H1 from revenue of £8.82m.

With clear growth prospects and a rising dividend, I think Lok’n Store is a very interesting growth dividend stock, particularly as its shares are currently trading at slightly below their adjusted net asset value of 418p per share.  

Moving up the value added ladder 

Another small-cap that’s delivered substantial shareholder returns of late is Discoverie Group (LSE: DSCV), whose share price has risen over 55% in the past half-decade and sports a solid 2.17% dividend yield as of today.

Discoverie, which used to be known as Acal, is a big player in the field of niche electronic components found in everything from radio frequency chips to high-speed cameras and lasers. Through organic growth and acquisitions, the group has been fast consolidating the fractured market that connects the hundreds of producers of these components to the even larger number of end customers.  

From 2014 to last year, revenue nearly doubled from £211m to £387m, while operating profits quadrupled, thanks to the company’s strategy of moving up the supply chain by using its in-depth knowledge of customers’ needs to produce high-margin niche products by itself. This strategy has led the company’s operating margins to increase from 3.4% in 2014 to 6.3% in 2018 with management targeting 8.5% margins in the medium term.

And after five consecutive years of double-digit earnings growth, management has been able to slowly increase dividend payments while simultaneously investing significant sums in acquisitions and R&D capabilities. With net debt at year-end just 1.5 times EBITDA, the company should be in good shape if the next global economic downturn comes sooner than expected.

At 16 times forward earnings, Discoverie is not the cheapest stock out there, but given its compelling growth strategy and proven ability to increase earnings, I think the stock could be a great one for long-term investors.  

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ian Pierce has no position in any of the shares mentioned. 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.

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