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2 under-the-radar stocks paying big dividends

While big dividends are usually associated with large, blue-chip FTSE 100 companies, a scan of the small-cap area of the market reveals a host of under-the-radar smaller firms that also reward their shareholders with strong payouts. Here’s two such stocks that look quite interesting.

Photo-Me International

£660 market cap Photo-Me International (LSE: PHTM) operates a wide range of instant service vending equipment, such as photobooths, digital printing kiosks and unattended laundry facilities. The company has nearly 50,000 vending units in operation in high footfall areas such as supermarkets and shopping malls across 18 countries.

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While sales haven’t always progressed in a linear fashion over the last five years, the company’s top line now looks to be trending in the right direction. Sales jumped 17% last year (boosted by favourable currency movements) and City analysts expect further growth of 6% this year and next. Profitability has increased significantly in recent years, with earnings per share rising from 5.7p in FY2014 to 9.3p per share last year.

The improvement in the bottom line, as well as the company’s ability to generate substantial amounts of cash, has enabled Photo-Me to reward shareholders with some hefty dividend payments recently. Last year, investors received 7.03p per share, a yield of 4% at the current share price. This year, analysts expect a payout of 8.43p, taking the yield to 4.8%.

Over the last five years, dividend growth has been strong, averaging 23%. The group has paid several special dividends as well. However, investors should note that the group doesn’t have a perfect dividend record, as it was forced to cut its payout in 2008. It’s also worth noting that after investing heavily in its laundry business last year, the dividend reduced the company’s cash pile from £71m to £48m.

With analysts forecasting earnings of 9.75p for this year, the stock currently trades on a forward P/E ratio of 18.2. That valuation appears reasonable to me, and as such, I believe there could be potential for both capital gains and further dividends going forward.

Numis

Another dividend stock flying under the radar of many investors is independent institutional stockbroker and corporate advisor Numis (LSE: NUM). I last covered Numis back in April. At the time, the shares had risen from 200p to 260p over 12 months, and since then, after a positive trading update in October, they have kept climbing, to now sit at 308p.

However, despite the strong share price performance, the yield on offer still looks attractive, in my view. Last year, the broker paid out 12p per share, which equals a yield of 3.9% at the current share price. Dividend coverage was strong, at 1.9 times. Looking forward, City analysts currently expect a similar payment of 12p for this year, before a rise to 12.5p next year.

Numis’s dividend history is quite impressive. Indeed, since paying a maiden dividend in 2000, the firm has never cut its payout, including during the Global Financial Crisis, when conditions were extremely challenging for financial services companies. As such, in my view, there’s a strong possibility that Numis will continue to reward its shareholders with healthy cash payouts in the future.

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Edward Sheldon 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.