3 small cap dividend shares I would buy

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

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

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

1300 Smiles Limited (ASX: ONT)

Despite the dental industry experiencing tough trading conditions at present, 1300 Smiles was able to deliver a solid 4% increase in half-year net profit after tax last month. This allowed the dental practice operator to lift its interim fully franked dividend to 12 cents per share, which means that its shares offer a trailing fully franked 3.7% yield based on its last close price. I think this makes it worth considering an investment in 1300 Smiles shares today.

Baby Bunting Group Ltd (ASX: BBN)

I think now could be an opportune time for patient investors to pick up shares in this baby products retailer. The company has been a victim of its own success over the last 12 months and suffered from clearance sales from closing competitors. Whilst there are concerns that these tough trading conditions could last a little longer if Toys R Us shuts its stores, I do expect in the long-term that Baby Bunting will benefit greatly and gobble up the vacated market share. This could put it in a position to grow its dividend meaningfully in the future. Its shares currently provide a trailing fully franked 5.5% dividend.

Money3 Corporation Limited (ASX: MNY)

I have been very impressed at the successful shift from pay day loans to secured auto loans that this financial services company has made. In February the success of its auto loans business led to the company reporting a 12.3% increase in half-year net profit after tax to $15.5 million. With the company still only holding a 2% share of the second-hand automotive finance market, I think Money3 has a long runway for growth ahead of it. Money3’s shares currently offer investors a trailing fully franked 4.2% dividend.

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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. 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 Scott Phillips.

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