3 small-cap dividend stocks I think you may be overlooking

Paul Summers takes a closer look at three market minnows all offering decent and secure-looking dividends.

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It’s easy to get into the habit of thinking that only large companies are worth buying for the bi-annual or quarterly cash returns they dish out to their owners.

Personally, I’m also partial to looking further down the market spectrum for my dividend fix, particularly as these companies also have at least the potential to grow revenue and profit at a far more rapid rate than your average FTSE 100 beast.

With this in mind, here are three examples of market minnows that rarely grab the headlines but offer decent payouts to investors.

Cheap income

Clearly, anyone considering buying a slice of a business involved in the volatile mining industry must go in with their eyes wide open, especially given current concerns over slowing global growth. Nevertheless, my first pick is Central Asia Metals (LSE: CAML).

One big attraction of this copper, zinc and lead-focused firm is that it’s a great source of dividends (in sharp contrast to many of its smaller peers). A mooted 14p per share total return in 2019 equates to a stonking 7.5% yield based on last Friday’s closing price. Normally, I’d be wary of such a sizeable cash return but cover of 1.8 times by profit suggests holders should be able to sleep at night. 

The shares are down 30% since April, not helped by the ongoing trade friction between Donald Trump and China. Should a resolution be found in the near future, we could see a bounce. In the meantime, prospective investors will only be paying a little under 8 times earnings to acquire the stock.

Another company that pays great dividends is logistics firm Wincanton (LSE: WIN). After a tricky few years of trading, the Chippenham-based business appears to be in a far better place with May’s full-year results including a 28.2% rise in pre-tax profit and a 34.6% reduction in net debt. More recently, the company announced that it had won a five-year contract with Morrisons to provide transportation services from three distribution centres to the latter’s stores.

It might not shoot the lights out in terms of capital growth, but a mooted 11.7p per share cash return this year leaves Wincanton yielding 5.1%. Again, the fact that this is likely to be covered almost three times by earnings means anyone holding probably won’t need to question the sustainability of these payouts for a while. 

Despite operating in a low-margin industry, one might also argue that Wincanton’s stock is simply too cheap. A forward price-to-earnings (P/E) ratio of a little less than 7 gives a decent margin of safety in my book

A final stock that I think warrants further attention from income investors is publisher Bloomsbury (LSE: BMY), best known for introducing Harry Potter to the world. 

Following a decent couple of years in which its share price has climbed 37%, Bloomsbury isn’t quite the bargain it once was and now changes hands at 14 times forecast FY2020 earnings. That’s not ludicrously expensive, but it is fairly high relative to others in the industry.

The dividends still look attractive though. An 8.4p per share return in the current financial would mean a yield of 3.6% covered twice by profits. Bloomsbury also has no debt (appealing in the unpredictable world that is publishing) and, with the next illustrated version of JK Rowling’s still-outrageously-lucrative series due in October, should enjoy a good end to 2019.

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Paul Summers 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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