1 small cap dividend share I’d buy before Woolworths Limited

The Woolworths Limited (ASX: WOW) share price is around fair value, in my opinion, while further down the market Gentrack Group Ltd (ASX: GTK) shares appear good value today.


Source: Google Finance

Woolworths shares have rallied strongly over the past year, following what was a tumultuous few years for Australia’s premier supermarket chain.

As it fell from almost $38 per share to below $21 per share, Woolworths’ management was shaken up, it sold out of its Home Improvement business – including Masters — and its profit margins narrowed. Its dividend was also cut.

But following its recent rally back to $26, I think the company’s shares are around fair value. Indeed, while it offers very modest growth potential and a 3% dividend yield, there are risks going forward. The ongoing growth of online shopping and competition from Aldi and Coles — owned by Wesfarmers Ltd (ASX: WES) — are obvious threats.

1 small cap dividend share I’d buy first

Fortunately, with over 2,000 other shares listed on the ASX, I’m in no rush to buy Woolworths shares. Further, with a three-to-five year (or longer) investment horizon, I think there are far better investment opportunities available right now.

One small cap company I have on my watchlist is Gentrack Group.

Gentrack is a $340 million software business specialising in solutions for airports and energy utilities. The company recently expanded its footprint in the UK with the acquisition of Junifer Systems, a highly complementary business.

Pleasingly, the company pays a 2.8% dividend and, in my opinion, offers room for long-term growth. Both of these features make it a compelling investment idea.

Foolish Takeaway

Gentrack Group might be considered a ‘higher risk’ idea because it is a smaller company than Woolworths. However, what’s important in investing is buying good companies at prices that ‘make sense’ and holding for the long-term.

Being impatient and buying shares of companies that are not good value, we increase the odds of losing money, in my opinion.

Patience doesn’t lose us money.

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen encourages your feedback. You can follow him on Twitter @OwenRask.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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