The dividend portion of returns seem to be much more reliable these days compared to the share price gains.
However, an investor can still find long-term growth options if they look for small businesses that are providing attractive dividend yields. These companies have a large growth potential because of their small size.
Here are five small caps which already offer attractive yields:
Pioneer Credit Ltd (ASX: PNC)
Pioneer is a debt collection agency with a market capitalisation of $126 million.
Most of its revenue comes from buying the debt owed to large companies, such as the big four banks. This has been a successful strategy as the shares have grown by 26.5% over the last year.
Pioneer is currently trading at 10.3x FY17’s estimated earnings with a grossed-up dividend yield of 7.09%.
Blackwall Ltd (ASX: BWF)
Blackwall is a property management and investment company with a market capitalisation of $56 million.
Its management and structure mean there is a lot of ‘skin’ in the game and it’s continuing to make positive moves.
It’s currently trading at 17x FY17’s estimated earnings with a grossed-up dividend yield of 5.41%.
Collection House Limited (ASX: CLH)
Collection House is another debt collection agency, it has a market capitalisation of $174 million.
Its relatively new contract with the ATO is paying off and management are confident that the worst of the last two years is behind it.
It is currently trading at 9.7x FY17’s estimated earnings with a grossed-up dividend yield of 8.7%.
Monash IVF Group Ltd (ASX: MVF)
Monash IVF is one of Australia’s largest IVF providers with a market capitalisation of $490 million.
The demand for IVF should continue to rise over the years ahead as families try to have kids at an older age where it could be harder to do so.
Monash IVF is trading at 15x FY17’s estimated earnings with a grossed-up dividend yield of 6.04%.
Virtus Health Ltd (ASX: VRT)
Virtus is the other large provider of IVF services in Australia with a market capitalisation of $483 million.
Virtus has a much bigger presence overseas compared to Monash IVF so it could benefit from this global strategy.
It’s trading at 14.6x FY17’s estimated earnings with a grossed-up dividend yield of 6.66%.
I think all five of these small caps are worthy of consideration. At the current prices, I think Pioneer and Monash IVF are the two that are most worthy of an investment.
However, being small caps means they are riskier than a lot of the familiar businesses on the market.
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Motley Fool contributor Tristan Harrison owns shares of Collection House Limited. 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.