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Could these small caps shares be future dividend stars?

Around 10 years ago Australian investors could have picked up Blackmores Limited (ASX: BKL) shares for approximately $16.00 each.

At that point in time the health supplements giant was classed as a small cap share with a market capitalisation of around $250 million. Today that market capitalisation has ballooned by 10 times to $2.5 billion.

Whilst that means that long-term shareholders have benefitted enormously from the appreciation in its share price, they are also being rewarded handsomely with dividends each year.

Based on market expectations for a $3.19 per share dividend in FY 2018, those investors that picked up shares at $16.00 each will receive the equivalent of a 20% yield on their original investment this year.

This means that if you had picked up $5,000 worth of shares 10 years ago you’d be receiving $1,000 in dividends this year.

I believe this demonstrates how rewarding a long-term investment in small cap shares that pay dividends can be.

With that in mind, here are three small cap shares worth watching:

Baby Bunting Group Ltd (ASX: BBN)

This $190 million baby products retailer’s shares currently offer a trailing fully franked 4.8% dividend. With many of its competitors closing this year, I believe the company is well-positioned to continue its expansion and win a greater market share.

Capilano Honey Ltd (ASX: CZZ)

If this leading honey producer can crack the China market then there could be a significant runway for growth ahead of it. Progress has been slower than I’d like but it is a marathon and not a sprint. Capilano Honey’s shares currently provide a trailing fully franked 2.5% dividend.

Money3 Corporation Limited (ASX: MNY)

After successfully transitioning away from payday loans to secured auto loans I think this $330 million financial services company is well worth a look. Especially considering how profitable it has found the auto loans business to be and how small its current share of the market is. Money3’s shares offer a trailing fully franked 3.8% 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 Blackmores Limited. The Motley Fool Australia owns shares of Capilano Honey 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.