3 small cap dividend stars I would buy today

While large cap shares such as Telstra Corporation Ltd (ASX: TLS) and Woolworths Group Ltd (ASX: WOW) offer investors generous dividends, I don’t expect much by way of growth from them in the short-term.

So if you’re on the lookout for dividends with strong growth potential I would suggest you check out the three small cap shares listed below. Here’s why I like them:

Collection House Limited (ASX: CLH)

This receivable management company has had a tough few years but appears to have turned a corner now. In fact, the company recently provided the market with revised guidance for FY 2018. Management expects Collection House to generate earnings per share of 18 cents to 18.5 cents, up 23% to 24% year-on-year. Traditionally the company pays out approximately 55% of its earnings as dividends, which could mean a full-year dividend of 10 cents per share in FY 2018. That equates to a 6.5% yield based on its last close price.

Money3 Corporation Limited (ASX: MNY)

Another growing company which I think would be a great option for income investors is Money3. Thanks to its successful pivot away from payday loans to secured auto loans, I believe the company has a long runway for growth. Especially given that it still only has a tiny share of the secured automotive finance market. If it can continue to grow its market share over the next couple of years at a similarly strong rate, I expect this to lead to solid earnings and dividend growth. At present Money3’s shares offer a trailing fully franked 4.1% dividend.

Paragon Care Ltd. (ASX: PGC)

This provider of integrated services to Australia’s health and aged care markets could be a perfect mix of growth and income. Thanks to the strong organic growth that is expected from the markets it operates in and the acquisition opportunities it has in a fragmented market, I believe Paragon could deliver above-average earnings growth for the foreseeable future. This could be good news for the Paragon dividend, which already provides a generous trailing fully franked 3.9% yield.

Breaking news: ASX companies set to raise dividends!

It's been a nail-biter of a reporting season here in the first half of 2018.

But the real action, in my opinion, is what companies are doing with dividends.

What does this mean for you? Well there is one stock I've found that could very well turn out to be THE best buy of 2018. And while there's no such thing as a 'sure thing' when it comes to investing - this ripper might come as close as I've ever seen.

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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 Telstra Limited. The Motley Fool Australia has recommended Paragon Care 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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