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3 small cap dividend shares on my shopping list

I think it is fair to say that many of Australia’s most popular dividend shares are going through an awkward stage at the moment.

While I still think the banks are great options for income investors, I wouldn’t expect much by way of growth from them over the next couple of years.

Whereas at the small end of the market I think there are a number of growing shares which could increase their dividends meaningful in the future.

Three which I think investors should take a closer look at are as follows:

Baby Bunting Group Ltd (ASX: BBN)

This could be a bit of a controversial pick as I expect Baby Bunting could cut its dividend this year before going on to grow it a strong pace over the next few years. This is because the baby product retailer has been a victim of its own success and has suffered from the clearance sales of competitors this year. But once this short-term headwind eases, I expect the retailer to win the vacated market share and profit greatly. At present its shares offer a trailing fully franked 4.9% dividend.

Duxton Water Ltd (ASX: D2O)

Duxton Water is a listed company that provides investors with direct access to water through Australian Water Entitlements, which are perpetual rights to Australia’s limited water supply. Its shares are currently trading at a slight discount to its NTA of $1.23 and provide a trailing partially franked 3.9% dividend. As I believe this dividend could grow at a steady pace over the next decade, it could make it one to hold onto for the long-term. Current market indications are for high temporary water prices through the 2018/2019 water year compared to prices in the current year, which could bode well for the company in FY 2019.

Money3 Corporation Limited (ASX: MNY)

After successfully transitioning away from payday loans to secured auto loans I think this financial services company is well worth a closer 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 4% dividend.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.