Why I would buy these small cap dividend shares

When it comes to dividends a lot of investors will look to blue chip shares such as Woolworths Group Ltd (ASX: WOW) and Wesfarmers Ltd (ASX: WES) for income.

Whilst these are fine choices, I think investors looking purely at the blue chip side of the market are missing out on some potential dividend stars of the future.

Here are two small cap dividend shares worth taking a closer look at:

1300 Smiles Limited (ASX: ONT)

On Tuesday 1300 Smiles released its half-year results which revealed a 4% increase in net profit after tax to $3.9 million. I felt this was a solid result given the weakness that has been experienced in the dental industry of late. This was highlighted recently when the Australian Dental Association of Queensland advised that 65% of the population do not visit the dentist for their two-yearly check-ups. Thanks to the solid rise in profit, the dental practice operator declared an interim fully franked dividend of 12 cents per share. This means its shares provide a trailing fully franked 3.6% yield based on its last close price. I think this makes 1300 Smiles worth considering today.

Money3 Corporation Limited (ASX: MNY)

This financial services company also reported its half-year results this week. Thanks to another impressive half from its fast-growing secured auto loans business, the company’s gross loan book grew 18.5% to $292.8 million. This led to Money3 delivering a 12.3% increase in net profit after tax to $15.5 million. Pleasingly, it also allowed the company to lift its interim dividend by 80% to 4.5 cents per share. This means its shares provide a trailing fully franked 4.2% dividend based on the last close price. Considering Money3 still only has an estimated 2% share of the second hand automotive finance market, I think it has a significant runway for growth in the future.

Finally, here is a third dividend share that I would pick ahead of Wesfarmers and Woolies.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia has recommended 1300SMILES Limited and Money3 Limited. 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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