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Are these the best small-cap dividends on offer?

Big FTSE 100 companies equal the best dividends and smaller cap companies mean growth, don’t they? Well not always. Though some FTSE 100 stars are indeed paying very handsome dividends these days, there are plenty of smaller companies handing over wads of cash too. Here are three that have caught my attention.

Cash from cash

The electronics payment sector is very competitive, but there’s plenty of growth likely for those who make a success of it. PayPoint (LSE: PAY) is one, and its installation in many thousands of retail outlets for paying household bills and the like has given it a bit of a headstart.

Adjusted earnings per share have been growing steadily, and the company is now in a transition phase after deciding to dispose of its mobile and online payments business and concentrate on its retailer operations. That will leave it with surplus capital, which chairman Nick Wiles has said will be returned to shareholders over the next five years (although special dividends might be deferred should attractive potential acquisitions show up).

The result is that the company’s progressive dividend policy is expected to provide an overall 6.5% yield for the year to March 2017, rising to 6.7% the following year — and that’s with the 963p shares on a P/E of 15 this year, dropping to 14.3 next. Who says you can’t have both growth and dividends?

Support services recovery?

Shares in support services and construction group Interserve (LSE: IRV) have slumped by 57% over the past 12 months. The firm’s acquisition of Initial last year has ramped up its debt position, and a trading update in May warned us to expect a £70m one-off cost in the first half from a contract that’s gone bad. For a company that recorded pre-tax profit of only £79.5m in 2015, it’s a significant hit.

The price fall has left the 281p shares on a forward P/E of only around 4, and has pushed the predicted dividend yield up to 9%! I think it’s very likely that the dividend will be cut this year, and such fear is surely behind the low valuation.

But markets almost always overreact to such fears as there’s still room for a sizeable dividend cut while leaving a reasonable yield this year. The problem is a one-off, and Interserve’s progressive dividend policy should see cash handouts remaining strong in the coming years. Expect some volatility, but definitely one to consider for the long term.

The death of paper

The fall in demand for print products like newspapers and magazines has taken its toll on Trinity Mirror (LSE: TNI) shares, which are down 58% since last November to 76p, and have lost 36% since the Brexit vote on 23 June. But have the pessimists gone too far?

The company’s July trading update told us the board “anticipates that our interim results will be in line with our expectations with continued strong cash generation over the period enabling a further fall in net debt“. That debt did stand at £92.9m at the end of December, which is a lot for a company with a market cap of £212m.

But does it really justify a forward P/E multiple as low as just a little over two when the long-term FTSE average is around 14? I don’t think so, especially with a 7.7% dividend yield forecast for this year followed by 8.3% next, which would be well covered by predicted earnings. Trinity Mirror is priced to go bust, but I can’t see that happening.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK owns shares of PayPoint. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.