3 cheap small caps with big dividends flying under the radar

While most of the market focuses on the top end of town, a small number of investors are looking at the opposite end. Those small-cap companies that have the potential to become large caps over time.

The main reason is quite simple. A small cap company can generate huge growth more easily than say the likes of Telstra Corporation Ltd (ASX: TLS) or Commonwealth Bank of Australia (ASX: CBA). Both those behemoths are currently struggling to generate revenue growth of more than 5%.

Here are three companies that could grow up to be much bigger one day…

LandMark White Limited (ASX: LMW)

A small property valuation company with a market cap of just $19 million, LandMark White recently reported a 14% increase in revenues to $28.2 million and a net profit after tax of $1.7 million – up 113% compared to the 2015 financial year (FY15). The company also declared a fully franked final dividend of 3.25 cents, taking total dividends to 4.5 cents per share. On those numbers, LandMark White shares are trading on a P/E of 11x and paying a trailing yield of 6.5% – which grosses up to 9.2%. The future looks bright too with LandMark White saying it is well positioned to grow.

Schaffer Corporation Limited (ASX: SFC)

Schaffer is an odd, diversified industrial company with core operations in building materials, automotive leather and property. The Automotive Leather division is the largest and generates around two-thirds of revenues, with building materials generating most of the remaining third. Schaffer – with a market cap of $72 million – recently reported revenues of $187.2 million and a net profit after tax of $5.7 million. The company also declared a 25 cent fully franked dividend. On those metrics, Schaffer’s shares are trading on a P/E ratio of 12.6x and yielding 4.9% fully franked.

Villa World Ltd (ASX: VLW)

A property developer, Villa World is the largest of the three companies with a market cap of $279 million at the current share price of $2.46. Today the company reported stellar 2016 financial year results, with revenues up 20%, earnings per share up 19% and dividends up 13%. The group has a good track record in the past few years of growth, with revenues of $387 million and NPAT of $33.7 million this financial year. That places shares on an undemanding P/E ratio of 8.3x and with an 18 cent dividend per share, a yield of 7.3% – fully franked – which grosses up to more than 10% when franking credits are included. Villa World expects to see at least 5% growth in NPAT in FY17 and a dividend of at least 18 cents again.

Not all blue chips are investment grade - here are 3 investors should sell, and 1 to Buy Today

After a double-digit rally for the ASX since 2016 lows, investors should be on high alert. You’ll find a full rundown below of 3 shares we think you should avoid today plus one top pick worth buying, even if the market turns south and the RBA keeps rates at an “emergency low.” Simply click here to uncover these stocks. No credit card required.

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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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