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I like these small-cap dividend stocks for passive income in a Stocks & Shares ISA

Thanks to sluggish wage growth, more and more people in the UK are looking to top-up their monthly income. One of the most convenient ways of doing this, at least in my opinion, is through buying stocks that return a proportion of profits to their owners.

Aside from being a relatively fuss-free way of making extra cash, it’s worth highlighting that holding dividend-paying companies within a Stocks and Shares ISA also means investors aren’t taxed on what they receive. 

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With this in mind, here are two companies from lower down the market that I think are great candidates for income-focused portfolios.

Simmering nicely

Strix (LSE: KETL) is a business I’ve covered many times now and one that features in my own ISA.

For those unfamiliar with the name, this is a firm that designs, manufactures and supplies kettle safety controls and water filtration products. As boring as that may sound, it’s not let investors down so far.

Since arriving on the market in August 2017, the stock has increased 42% in value. For comparison, the FTSE 100 is up just 3% over the same period. What’s more, today’s trading update suggests this outperformance is likely to continue. 

Despite Brexit and the US/China trade scrap, Strix stated that the global kettle market “remained resilient” in 2019, growing by 4.5%. As a result, the £350m cap predicts adjusted post-tax profit will be “in line with market expectations”. Due to strong cash generation, net debt is also expected to fall to around £26.3m, down significantly from almost £46m in 2017. 

Strix plans to launch 12 new products in 2020 and open a new factory in China in January 2021, suggesting further growth is on the cards. Nevertheless, it’s the dividend payouts that I think make the minnow a worthy hold. 

The company has pencilled in returning a total of 7.7p per share to holders for 2019, equating to a yield of 4% at the current share price. That’s attractive, particularly as the shares trade on just 12 times expected FY20 earnings.

Strix won’t shoot the lights out, but it should continue simmering.

Strong recovery

Another company worthy of attention from second-income seekers is trading platform provider CMC Markets (LSE: CMCX).

Having faced the considerable headwind of increased regulation in recent times — a development that has hammered its share price — today’s Q3 trading update suggests the worst might be over.

Net operating income “continued to outperform expectations” in the three months to the end of December and was attributed to the company retaining more clients compared to the first half of the financial year. Despite increased operating costs, CMC said that it now expected the former to be “ahead of the upper end of the current range of analyst forecasts” (£184.1m to £189.3m).

Having rallied strongly in recent months, the shares were trading flat this morning, suggesting that a lot of this news was already priced-in. Nevertheless, a price-to-earnings (P/E) ratio of 13 for the current year doesn’t feel excessive given the potential of its stockbroking business and white label partnerships with banks. 

Like Strix, however, it’s CMC’s dividend credentials that I’m most interested in. The small-cap is forecast to return 6.23p per share in 2019/20, giving a yield of 3.8% covered twice by profits. With the best Cash ISA paying out just 1.31% in interest, I know which I’d pick. 

A top income share with a juicy 6% forecast dividend yield

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Paul Summers owns shares of Strix Group. 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.