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These small cap dividend shares are on my shopping list

When it comes to dividends many investors will head straight to the large end of the market to companies such as JB Hi-Fi Limited (ASX: JBH) and Woolworths Group Ltd (ASX: WOW).

While these have been fine choices in the past, I’m not overly convinced that we will see much by way of growth from them in the coming years.

Because of this, I think investors ought to consider some of the top dividend shares at the small end of the market which could have plenty of growth ahead of them.

Two that I think are worth a closer look at are listed below. Here’s why I like them:

Baby Bunting Group Ltd (ASX: BBN)

I suspect that this $190 million baby products retailer may actually cut its dividend this year. But don’t let that put you off, I believe this has already been priced into its shares. Furthermore, this is likely to be a one-off and I expect patient shareholders will be rewarded with strong growth over the next few years. Baby Bunting has been negatively impacted by the clearance sales of several closing competitors this year. But with the competition depleting, I expect major market share gains in FY 2019 and beyond. At present its shares offer a trailing fully franked 4.8% dividend.

Rural Funds Group (ASX: RFF)

One of the top dividend shares on the Australian share market in my opinion is this real estate investment trust. With Australia’s population growing and demand for Australian food produce from Asia increasing at a strong rate, I don’t believe there will ever be a shortage of tenants for its farming assets. These assets include cotton, cattle, poultry, grape, macadamia, and almond production and have been tenanted to some of Australia’s major producers and exporters for many years. Pleasingly, the company has rental indexation built into its rental contracts, which I think provides a reasonable amount of visibility in regards to future earnings and distributions. Rural Funds’ shares currently offer a trailing yield of 4.9%.

This third dividend share may no longer by a small cap, but it certainly is growing like one. I think it has the potential to be a star income stock of the future.

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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 RURALFUNDS STAPLED. 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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