Most associate dividend-paying stocks with large blue-chip companies. However, there are a few small yet quality ASX listed business that pay among the highest dividend yields available in the market today.
When choosing a dividend stock, the current dividend yield is less important than the ability of the company to maintain and grow its dividends in the future. On this score, all four of these little businesses do well. They all have low capital requirements enabling them to pay a high percentage of profits to shareholders each year. They also generate high returns on equity and have decent growth prospects.
All four companies pay fully franked dividends which means that there is no tax to pay on the dividend income that shareholders receive. This can be worth an additional 43% to the face value of the dividend for higher income earners in the form of reduced tax payments.
Two out of four companies are still led by their founders who also retain significant ownership stakes. The other two have founders with sizeable shareholdings sitting on their boards of directors. This ensures that shareholder and management interests are firmly aligned and could go some way to explaining the terrific long-term track records of these four companies.
So, without further ado, here are four of my favourite dividend shares.
Telecoms retailer Vita Group Limited (ASX: VTG) pays a 4.9% dividend yield which equates to 7% grossed up after accounting for tax benefits.
The company is run by founder and largest shareholder Maxine Horne and has thrived over recent years under a partnership arrangement with Telstra Corporation Ltd (ASX: TLS). With the era of connected devices upon us, strong demand for consumer IT and telco products and services looks set to continue which should be good for Vita.
Following a difficult period during the GFC, Vita resumed dividends in 2011 when it paid out 3.1 cents per share. Dividends and profits have risen strongly since and over the last 12 months the company returned 17.4 cents to shareholders.
IT services provider Data#3 Limited (ASX: DTL) pays a 5.4% dividend or 7.8% on a gross basis.
Co-founder and former managing director Terry Powel is a non-executive director and until recently fellow co-founder John Grant was CEO before stepping down at the end of 2015.
Data#3 has an excellent long-term history of profitability as a listed company stretching back to the 1990s but between 2011 and 2014 it experienced a slump, with profits falling from $15 million to $7.5 million. This was partly to do with subdued investment following the GFC, but also relates to the rise of cloud computing and the commoditisation of IT.
Since 2014, Data#3 has recovered well and it seems this tricky period is now behind it. The company announced net profit after tax (NPAT) of $13.8 million last year and today boasts a thriving cloud computing business which grew revenues by 44.2% to $58 million in the first half of 2017.
The company paid dividends totalling 8.9 cents per share in the last 12 months up from 2.8 cents in 2006 (after adjusting for the 2011 share split).
IT distributor Dicker Data Ltd (ASX: DDR) pays a 6.4% dividend, 9.1% grossed up and is run by founder and major shareholder David Dicker.
As a distributor, the company earns thin gross margins of less than 10%, but has grown NPAT rapidly since listing in early 2011. It has done so whilst minimising dilution of shareholder equity thanks to smart use of debt by management.
In the first 12 months after listing, Dicker paid 3.9 cents out to shareholders. Over the last 12 months, the company returned 16 cents.
House builder Tamawood Limited (ASX: TWD) has a 6.6% dividend yield which equates to 9.5% grossed up. Founder and largest shareholder Lev Mizikovsky sits on the board of directors.
The Queensland-based company has recently expanded into New South Wales and has a growing franchise business spanning the east coast. Like the other companies listed above, Tamawood is a cyclical business that would likely suffer during a recession but is well run and has good long-term prospects.
Tamawood has a long-term history of increasing dividends. In 2006 the company paid out 13 cents, but over the last 12 months it returned double this amount to shareholders.
