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Why I would buy these small cap dividend stars today

If you’re a fan of small cap shares and dividends, then you’re in luck.

Right now there are two small cap shares that I believe are trading at attractive prices and offer generous dividends which have the potential to grow significantly in the long-term.

Which makes a refreshing change to the negative outlook that many analysts have for some of the banks and of course the embattled Telstra Corporation Ltd (ASX: TLS).

The two shares in question are listed below. Here’s why I like them:

Baby Bunting Group Ltd (ASX: BBN)

It wasn’t that long ago that this baby products retailer could have been classed as a mid cap share. But a 26% decline over the last 12 months means that its market capitalisation now stands at $181 million, putting it firmly in the small cap space. The reason for Baby Bunting’s decline has been the negative impact of clearance sales by closing competitors. Unfortunately, these sales meant that Baby Bunting had to temporarily slash prices to maintain market share.

Pleasingly, conditions appear to be easing and should mean that the company bounces back with a bang in FY 2019 after gobbling up the vacated market share and benefiting from being in a more powerful position at the negotiating table with suppliers. At present Baby Bunting’s shares provided a trailing fully franked 5% dividend.

Money3 Corporation Limited (ASX: MNY)

I think that Money3 could be one of the best combinations of growth and income in the space cap space right now. I’ve been very pleased with the way the company has successfully transitioned away from pay day loans to secured auto loans,

Not only is this the ethical thing to do, it is a lucrative market with significant room for Money3 to grow into. Especially considering it still only has an estimated 2% share of the secured second-hand automotive finance market at present. If it continues to win market share over the coming years, then I expect its profits and dividend could grow at a solid rate. At present Money3’s shares offer investors 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 Telstra 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.