The Motley Fool

3 small-cap stocks with big dividends and growth potential

Forget blue-chip stocks like Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd (ASX: NAB).

If you’re a long-term investor and want to make truly life-changing amounts of money, I believe it’s vital you look past the ‘usual suspects’ and towards companies with sound growth prospects, a strong balance sheet and a tendency to pay dividends.

As these companies grow their earnings per share, it’s likely that they’ll also declare larger dividends as time goes by. To identify these opportunities, it’s important to look beyond the short term and find companies which will have the ability to reinvest capital at competitive rates.

One company which offers long-term investors both growth and income prospects is Cash Converters International Ltd (ASX: CCV). The company’s return on capital has fallen in recent times, along with its share price.

However with a number of growth areas it can pursue, combined with a healthy balance sheet and good management, I believe Cashies will grow out of its current low and into a much more profitable business, over time.

Also at the top of my watchlist are Amcom Telecommunications Limited (ASX: AMM) and Collins Foods Ltd (ASX: CKF).

Amcom is a data centre and communications company which has grown rapidly in recent years.

Collins Food owns and operates KFC and Sizzler Chains throughout Australia. The company has only been listed on the ASX for a few short years but thanks to its solid balance sheets, it has been able to grow its store count rapidly without issuing shares.

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I think all of these companies are likely to make good long-term investments. Indeed, I’m already a proud owner of Cash Converters shares.

However our top analyst Scott Phillips, recently identified one cheap but growing small-cap ASX stock which has a 6.3% grossed-up dividend yield. I think it is a STANDOUT long-term buy at today’s prices. If you’re interested in knowing its name, just click on the link below, enter your email address and we’ll send you a FREE report on his top dividend stock idea for 2014 – 2015.

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Motley Fool Contributor Owen Raszkiewicz owns shares in Cash Converters. 

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