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Forget FTSE 100 firms! I’d invest in strong, growing small-caps like this

I’m keen on the record of steady trading from specialist fuels, food and animal feeds distributor NWF (LSE: NWF). And I like the relentless upwards progress of the shareholder dividend even better!

With the shares at 182p, the forward-looking yield for the trading year to May 2021 is running just over 3.9%, which strikes me as a decent level of payment. On top of that, City analysts expect annual increases in the dividend ahead in low-to-mid single-digit percentages.

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A steady, growing business

Meanwhile, the earnings multiple for next year is just below 11 when we factor in generous single-digit increases in earnings for the next couple of years. The shares look reasonably priced to me. And NWF operates a steady-looking business that’s well-established. Although the market capitalisation is just £88m or so, this isn’t the kind of racy, high-risk enterprise we often find in the small-cap arena.

But NWF does have an agenda for growth and things have been going well. Today’s half-year results report reveals the company made two acquisitions for its Fuels business in the period and a third after the period ended. Altogether, the deals add 115m litres of volume to turnover.

Chief executive Richard Whiting explained in the report that the firm has acquired five fuel businesses over the past 12 months, which have increased the annualised volumes by almost 30%. He said the company had “a very positive” first half, with all divisions trading in line with, or exceeding, expectations.

The directors struck a deal in the period to take on a 240k sq ft warehouse to expand the Food division. The facility will support ongoing organic growth and a new five-year contract with “a major food company.” Overall, revenue grew by 5.6% in the first six months of the trading year and the company experienced increased activity levels in all divisions.

Profits up

Meanwhile, adjusted diluted earnings per share shot up by just over 34% compared to the equivalent period the year before. And net debt came in broadly flat at just over £33m, including lease liabilities.

I reckon the firm has borrowings under control and see the directors’ decision to hold the interim dividend flat as a conservative move. They appear to be managing the incoming cash flow well, which I find encouraging. 

I reckon small-cap companies like this one demonstrate we don’t have to stick to investing in large, FTSE 100 outfits to reduce portfolio risk. NWF seems to have established itself in its market niche, and the directors appear to be doing a decent job of running things, just like we see in many larger firms.

I’m tempted to invest in smaller companies like NWF because they have room to grow and could evolve into larger companies, leading to a decent investment outcome for shareholders over time.

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Kevin Godbold has no position in any share 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.