The share price of Dicker Data Ltd (ASX: DDR) is up 2.0% to $5.13 in Wednesday trade on a day where the S&P/ASX 200 (INDEXASX: XJO) index is down 0.7%. The IT distribution business has been one of the best performing small caps on the market in 2019, with its share price rising 82% so far.
Why has Dicker Data outperformed in 2019?
The company's strong performance in 2019 can be attributed to a number of earnings announcements that surpassed the market's expectations.
In February, Dicker Data announced its FY18 result and reported revenue growth of 14.4% to $1.49 billion with net profit after tax increasing 15.0% to $46.2 million.
The annual result was followed by the release of the company's first quarter result for FY19 earlier this month. Dicker Data has started the new financial year strongly with the company reporting a 21.1% increase in revenue over the prior period to $386.9 million. The growth in the top-line was attributed to strong performance across all of the company's vendor partnerships and realising full value from new vendors.
Moreover, Dicker Data announced profit before tax for the first quarter rose 46.7% to $13.5 million. This result was ahead of the market's expectations and occurred due to costs as a percentage of sales materially declining, which led to profit before tax margins surging from 2.7% to 3.5%.
The company noted that its quarterly result was ahead of its forecast for the period and remains confident that it will achieve its full-year guidance of pre-tax profit of $51.4 million. Management has also stated that it is investing heavily in additional staff and productivity measures to support a larger customer base and vendor portfolios, which is expected to result in the company's cost base increasing over subsequent quarters in FY19.
Foolish takeaway
Using the company's own guidance and a 30% tax rate, shares of Dicker Data are trading for around 23 times forward earnings. This is a higher valuation multiple than what the company has traded for in recent times. However, the earnings growth the company has reported and its track record justifies a premium to the broader market's valuation, in my view.
Dicker Data pays out almost all of its profits via quarterly dividends. The strong earnings growth has seen the company's dividend increase by 30% over FY18 through the first 2 quarters. The surging share price has seen the dividend yield fall, but it still offers income investors a forward yield of around 4.3% that comes attached with full franking credits. This is a similar yield to widely held blue chips Insurance Australia Group Ltd (ASX: IAG) and Telstra Corporation Ltd (ASX: TLS).
Businesses at the smaller end of the market are vulnerable to a number of risks. In Dicker Data's case, this would include the loss of key management personnel and the loss of any major vendors (the top 5 vendors represented 57% of sales in FY18). As a result, retail investors should only consider owning the stock as part of a diversified investment portfolio.
For investors looking at other strong dividend bets, take a look at our analysts' top 3 dividend shares for 2019…
