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Does venturing into Small-cap shares equates to sacrificing dividends?

  • September 04, 2018 01:43 PM AEST
  • Team Kalkine
Does venturing into Small-cap shares equates to sacrificing dividends?

Small-cap stocks generally have a market capitalization ranging from $300 million to about $3 Billion. Many companies in this category of market index generally are riskier than their other counterparts who have a market cap higher to a few billion dollars or over. Small-caps are usually riskier than your average ‘blue-chips’ like NAB, Westpac, Telstra or BHP Billiton, however, many of them have got the power to explode your wealth in just months, sometimes even in weeks! These are also those companies which are also not listed on the top 100 of ASX by size.

Gold MTF non-AMP

For many investors, dividend stocks represent the perfect balance in a changing investment landscape. Making it possible to draw income from a portfolio, dividend stocks provide reliable, regular income to their shareholders. Stocks that pay good dividends have continued earnings growth prospects, which allows for share price appreciation and long-term gains. Smaller companies may want to reinvest in the business for growth perspective but compromise on the income proceeds i.e. the dividends. There are rare companies which can provide you with both dividend and growth. We can look at few such stocks:Â Â [optin-monster-shortcode id="wxhmli4jjedneglg1trq"]

WAM Research Limited (ASX: WAX) – The company has an attractive annual dividend yield of 5.59%. With the ex-dividend date as of October 12, 2018, and dividend pay date as October 26, 2018, the most recent dividend is 4.75 cents and the dividends are fully franked. The company is ready to deliver a total of 9.5 cents per share, a full year dividend fully franked which is an increase of 5.6% on the prior year. Based on the strong performance, the board of directors declared a fully franked final dividend of 4.75 cents per share (cps). This indicates the financial position and health of the company which is in good shape. Dependent upon the receipt of franked dividends from investments and the payment of tax, is the ability to generate franking credits. The company’s operating profit before tax is $28.9 million which is reflecting the solid performance in support of a 14.5% investment portfolio performance.

JB HI-FI Limited (ASX: JBH) - The company’s EBIT increased 14.5% to $350.6 million in FY 18 as compared to last year. Resultantly, NPAT grew by 12.3 percent and amounted to $ 233.2 Mn in FY18 as compared to the previous year. As a result, the Board of Directors declared fully franked final dividend of 46 cents per share for its shareholders and it will be payable on September 07, 2018 with the record date of August 23, 2018. This brings the total full-year dividend to 132 cents per share, up 11.9% on the prior year, equating to a payout ratio of 65% of net profit after tax. Further, the Board currently believes a 65% dividend payout ratio appropriately balances the distribution of profit to shareholders and reinvestment of earnings for future growth. The company has an annual dividend yield of 5.1% with 100% franking. The company has been listed since quite some time i.e. 2003 and has been declaring a rising dividend stream over the past 5 years. The group has a market capitalisation of $2.97 billion, which makes it stand close to the mid-cap category.

QV Equities Limited (ASX: QVE) - The company has an annual dividend yield of 3.56% which is fully franked, and the most recent dividend declared was of 3.1c with dividend ex-date as October 1, 2018, and dividend pay date as October 31, 2018. The company’s fully franked dividend is 5.2 cents per share including the special dividend, for the full year which is up from 4.0 cents per share in the prior year. This can be attributed to the growth in profit after tax which the company has witnessed from $345 million in 1H 2017 to $358 million in 1H 2018. With a price to earning (P/E) ratio of 29.140 and earnings per share (EPS) of 0.041 AUD which compares well among the peers, the company has decent growth potential.

The downsides of small-cap investing aren’t less either. For one, these stocks are typically more volatile than their larger cousins. Small caps can also fall faster than large caps in a declining market. Looking at a company’s free cash flow during the last few years is one of the most important factors while seeking a small cap with dividend stock. Another thing to keep in mind: dividends are rare in the small-cap universe, as companies prefer to plow their profits back into the business to drive their growth. Investors tend to associate dividends with large-cap stocks, however, sometimes small cap can offer surprising dividend stream along with strong growth if an investor digs deeper.

[caption id="attachment_27373" align="alignnone" width="1089"]DPS WAX DPS of WAX, JBH and QVE, Source: Thomson Reuters[/caption]

Dividend Stocks To Buy

The Income available from dividends remains attractive for many investors.

We take a look at the best yields on the market and assess what they say about a company’s prospect.

One Thing is certain, though, Australia interest rates are still low, making income difficult to come by and keeping the focus for many investors on high yielding stocks. Kalkine’s team of analysts bought you handpicked report for “Top 25 Dividend Stocks For 2018.”

ASX-relevant Special Reports are published year-round to provide a detailed analysis into an investing opportunity or a potential risk to your portfolio.

Click here to get your free report.


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