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2 high-yield dividend stocks I’d buy in May

We often expect the best dividend-paying companies to be the big FTSE-100 ones, but it would be a mistake to exclude smaller firms from our search for the best income. Here are two small caps that are chucking out cash.

Progressive dividends

In recruitment specialist Harvey Nash Group (LSE: HVN), I’m seeing one that is beating a lot of the big players. The share price has lost 30% since August 2015, but it’s been picking up this year and currently stands at 73p — and that’s after a 5.8% rise on the day the firm announced a 6% rise in pre-tax profit for the year to January 2017 (16% in constant currency terms).

Earnings per share gained 8% to 8.7p per share (18% at constant currency), and the full-year dividend was lifted from 3.85p to 4.09p — that’s an inflation-busting rise of 6.2%, ahead of forecasts, and which the firm says reflects its “progressive and sustainable dividend policy“.

Even after today’s price rise, that still represents a yield of 5.6%, and continues a track record of year-on-year dividend hikes that have lifted the annual payment by 54% in just five years. Oh, and it’s well covered by earnings too, which makes the rises forecast for the next two years look comfortable.

One thing I’m a little uncertain over is the firm’s intention of moving from the LSE main market to AIM, as the latter has a lamentable record of poor regulatory enforcement. But I don’t doubt Harvey Nash’s integrity, and for a company with a market cap of only £53m it does make some sense.

To support these predicted dividends, the City’s analysts are also forecasting continued earnings growth, and that would drop the shares to a P/E of only a little over eight this year, and to 7.5 for January 2019. I reckon that’s too cheap.

Charter airline

Air Partner (LSE: AIR) is my other dividend choice today, after the aviation services group reported a 10% rise in full-year underlying earnings per share, to 6.5p. That was a behind some forecasts, and the shares lost 5% on the news to stand at 112p.

But the dividend came in ahead of expectations at 5.2p per share, for a yield of 4.6%. That’s not one of the biggest yields around, but it’s another that looks well covered and sustainable, and a few more years of progressive hikes could easily see it above the 5% mark.

My confidence in future payouts is boosted by the company’s strong cash generation, with cash balances of £19.8m (including £15.9m from the firm’s JetCard arm) on the books. 

Air Partner has been restructuring its business mix, with chief executive Mark Briffa telling us the firm is starting to see the results of that. Chairman Richard Everitt added to it, saying the new strategy “…has the power to transform our business model, reducing volatility and improving the overall quality of our earnings“.

Forecasts reflect the optimism too, with the past few years of somewhat erratic earnings giving way to predictions of healthy growth — and we’d see a P/E of an undemanding 12.5 by January 2019 if they’re right.

But the dividend is really where it is at for me, and the latest payment has already beaten the forecast for the current year, so we should expect to see that upgraded soon. My verdict? Cash cow.

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Alan Oscroft has no position in any 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.