Dividend-hungry investors should take a look at smaller-cap shares for more attractive dividend opportunities. Although investing in smaller companies may be more risky, investors are well rewarded for taking the risks. It has long been recognised that the returns of smaller companies typically outperform the returns of larger companies, over the longer term.
Small caps are also worth a look, because many of the high yielding FTSE 100 shares are mining or oil and gas companies, which have become particularly less attractive with falling commodity prices.
Here are five high-yielding small-cap shares:
De La Rue
De La Rue (LSE: DLAR) saw its earnings fall by a quarter in its recent financial year, as it faced increased competition from other note-printers and the higher cost of paper reduced its profit margins. Although the company has cut its annual dividend to 25 pence per share, from 41.3p, its shares still yield 4.9%.
The earnings setbacks should be temporary, as the company seeks to expand its higher margin businesses, including polymer banknotes, security products and passports. De La Rue has a forward P/E of 14.3.
John Laing Infrastructure Fund
Infrastructure investment fund, John Laing Infrastructure Fund (LSE: JLIF), invests primarily in government backed infrastructure projects. The revenues it receives is typically inflation-linked, allowing the infrastructure fund to pay dividends that grow faster than inflation. As water companies now promise slower rates of dividend growth, this fund could be a more attractive alternative investment.
Its shares currently trade at an 11% premium to its net asset value (NAV), and yields 5.4%. Although the fund has had a strong track record of delivering steady dividend growth in excess of RPI inflation, NAV growth has been very limited. So don’t expect much capital appreciation.
Communications company, KCOM (LSE: KCOM), announced its full year results today. Adjusted EPS rose 5% to 7.91p, following strong demand for fibre and enterprise solutions. It sees significant opportunities for cloud and collaboration services in the Enterprise market. But, KCOM’s legacy services are performing badly, causing group revenues to decline 6.1% to £348.0 million.
The company is set to raise its dividends by 10% for the sixth consecutive year, which gives it an indicative dividend yield of 5.9%. KCOM is also attractive on an earnings basis, with a forward P/E of 12.7.
Redefine International (LSE: RDI) is a diversified REIT with property in the UK, Europe and Australia. The REIT’s smaller development portfolio and its larger European portfolio has meant it has enjoyed smaller property valuation gains over recent years than many of its larger peers.
But, its portfolio does have a high net initial yield of 6.8%, which provides significant rental income for distribution to shareholders. Even though Redefine International is trading at a 26% premium to its NAV, its shares yield 6.0%.
Tullett Prebon (LSE: TLPR), an interdealer broker, saw its revenues fall by 15% in 2014, as investment banking activity declined. The outlook for the sector remains gloomy, with trading volumes declining because of new regulations reducing risk appetites of commercial and investment banks. Tullet Prebon is seeking to reduce costs to improve margins, given the sector seems to be in strucutal decline.
However, there could also be some upside to earnings from acquisitions that the company intends to make from its $100 million settlement with BGC Partners. Its shares are attractively valued, with a forward P/E of 11.7 and a dividend yield of 4.3%.
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Jack Tang has no position in any shares mentioned. The Motley Fool UK has recommended KCOM Group. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.