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3 small cap dividend shares for income investors

If you’re looking for growing dividends, then I think the small end of the market is a great place to start your search.

In this area of the market there are many companies on the rise with the potential to grow their dividends meaningfully in the future.

Three which I think are worth a closer look are listed below. Here’s why I like them:

Adairs Ltd (ASX: ADH)

At present this home furnishings retailer’s shares offer income investors a trailing fully franked 5.3% dividend. Not only is this yield greater than the market average, I believe it has the potential to grow meaningfully over the next few years. Adairs returned to form with a bang in FY 2018 and reported a 45.4% increase in profits to $30.6 million. This was driven by a 14.3% increase in like for like sales, improved margins from less discounting, and strong online sales growth. The latter grew by an impressive 75% on the prior year to $42 million. I expect more of the same in FY 2019 and beyond, which I feel makes Adairs a great option for income investors.

Money3 Corporation Limited (ASX: MNY)

I’ve been very impressed at the way Money3 has successfully shifted away from payday loans to secured auto loans. The success of the shift was evident in FY 2018 when Money3 posted a 16.6% increase in its secured auto loan book, leading to a 10.1% increase in net profit after tax to $32 million. This allowed its board to lift its dividend by almost 70% to 9.5 cents per share, equating to a trailing fully franked 4.4% yield today. Considering the company only has a tiny share of the secured auto loan market, I believe it has a significant runway for growth ahead of it.

Noni B Limited (ASX: NBL)

Noni B is one of my favourite retail shares right now. Despite its shares going gangbusters over the last 12 months, I don’t believe for a second that it is too late to invest. Especially if the company’s acquisition of a number of brands from Specialty Fashion Group Ltd (ASX: SFH) is a success. While these brands have struggled under Specialty Fashion’s leadership, Noni B has a track record of successfully turning around underperforming brands. If it succeeds it would put Noni B in a position to continue its strong run of earnings and dividend growth. At present its shares offer a trailing fully franked 3.7% yield.

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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.

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