With many of Australia's leading blue chips struggling to grow their dividends right now, I think it is well worth checking out the small end of the market.
This is because I believe there are a number of small cap shares with the potential to grow their dividends strongly over the coming years.
Three which I think investors should take a closer look at are as follows:
Baby Bunting Group Ltd (ASX: BBN)
This baby products retailer's shares currently offer investors a trailing fully franked 4.3% dividend. While there's a chance that the company may have to cut its dividend back slightly this year due to the negative impact that clearance sales from its closing competitors have had on its business, I expect the company to bounce back strongly in FY 2019 and seize on the vacated market share. This could make it worth being patient with Baby Bunting.
Duxton Water Ltd (ASX: D2O)
Duxton Water is a listed investment company providing investors with direct access to water through Australian Water Entitlements. Australia has been experiencing significantly dry weather conditions for an extended period and many areas are suffering from severe droughts. I believe this bodes well for Duxton Water and should put it in a good position to benefit from high temporary water prices through the 2018/2019 water year. At present the company's shares offer investors a trailing 3.8% dividend.
Rural Funds Group (ASX: RFF)
Rural Funds is a real estate investment trust which is focused on the agricultural sector. I think it is a great buy and hold option due to its diverse portfolio of assets and the long-term tenancy agreements that it has for them. This, and the fact that it has rental indexation built into its agreements, gives investors a lot of clarity on the company's future cash flows and ability to increase its dividend. Which at present provides a trailing 5.2% dividend paid in quarterly instalments.
