Although the likes of Australia and New Zealand Banking Group (ASX: ANZ) and Commonwealth Bank of Australia (ASX: CBA) offer investors very generous dividends, I don't expect much by way of growth from them over the medium term.
So if you're on the lookout for dividends that have strong growth potential I would suggest you check out the three small cap shares listed below. Here's why I like them:
Baby Bunting Group Ltd (ASX: BBN)
Baby Bunting is Australia's leading baby products retailer which became a victim of its own success in FY 2018 when the closure of a large number of competitors led to heightened clearance activities. Pleasingly, these competitors are now long gone and the company is benefiting from the reduced competition. So much so, it posted a 28% increase in net profit after tax to $5.2 million during the first half. This strong form and its positive outlook allowed Baby Bunting to declare a fully franked interim dividend of 3.3 cents per share, up 18% on the same period last year. On an annualised basis this equates to a 3% yield. I expect this dividend to continue growing strongly over the coming years.
Kogan.com Ltd (ASX: KGN)
Whilst this ecommerce company's shares only provide a trailing fully franked 2.5% dividend yield at present, I believe this dividend could grow significantly in the future if Kogan can continue its strong growth. After a shaky start to the year, Kogan returned to form in the third quarter of FY 2019 when it posted a whopping 96.4% increase in EBITDA compared to the prior corresponding period. And with management confident in its business strategy, I believe Kogan's earnings and dividend could grow strongly in FY 2020.
Propel Funeral Partners Ltd (ASX: PFP)
Propel Funeral Partners is the second largest funeral business in the Australia and New Zealand region with a network of 109 locations. At present its shares offer a fully franked trailing 3.8% dividend yield. I believe this dividend could grow at a solid rate over the next decade thanks to improving trading conditions and the company's growth through acquisition strategy.
