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Could this 9% dividend yield make you a million?

As the rollout of its new technologies continues at pace, I reckon Paypoint (LSE: PAY) is a share that could provide exceptional shareholder returns in the years to come.

Why am I so excited about the small-cap? Two words: PayPoint One. Through this technology PayPoint has provided a one-stop shop through which convenience stores can carry out a variety of functions quickly and easily, from taking contactless card transactions and processing bill payments through to carrying out electronic point of sale (or EPOS) functions.

PayPoint says that “our technology helps retailers to serve customers quickly, improve business efficiency and stay connected to their stores from anywhere.” And this is not mere bluster, as indicated by the terrific adoption rates of this technology since it was introduced back in 2016.

Some 8,550 sites were using PayPoint One as of the end of March but this has now burst through the 9,000 barrier. And tie-ups with Nisa and Booker to integrate EPOS services into their fulfilment systems paves the way for further progress on this front.

And the growing role of convenience stores in the wider grocery shopping segment provides increasing opportunities for PayPoint to roll out its wares. The indispensable nature of the company’s product means that PayPoint can also lay claim to having formidable barriers to entry too.

Eastern promise

While PayPoint One may be grabbing most of the headlines today, it’s worth noting the excellent sales potential the support services giant has in Romania, its second largest market.

It may only account for around 20% of group revenues today, but the rate at which business is growing in the country should make investors sit up and take serious notice. Helped by the acquisition of pre-paid voucher and money-wiring specialist Payzone in October, transaction volumes jumped 29% in the 12 months to March 2018 to 96.4m, a result that pushed net revenue growth to £11.9m, up by almost a third year-on-year.

Sales progress would still have been strong without the acquisition however, PayPoint advising of a 12% uptick in organic net revenues in the period. Still, the deal provides the company with a significant footprint in the Eastern European territory which spans more than 20,000 stores.

A one-stop shop

PayPoint is expected to endure another fractional earnings reversal in the current fiscal period, a 1% drop currently being predicted by City analysts due to the colossal investment it is making in PayPoint One and its other technologies.

But the business is expected to get its growth story back on track with a 6% improvement next year. And this bubbly outlook, combined with terrific cash generation — operating cash flow increased 6.5% in fiscal 2018 to £65.1m — lends itself to expectations of generous dividends of 84.6p and 86.1p per share for fiscal 2019 and 2020 respectively. As a consequence, yields sit at a chunky 9% and 9.1% for these respective years.

At today’s share price, PayPoint carries a forward P/E ratio of 15.1 times. This is far, far too cheap in my opinion given its exceptional revenues prospects in its British and foreign marketplaces. I believe income chasers need to give the stock serious consideration today.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of PayPoint. 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.