3 small cap ASX dividend giants

Any plan to accumulate ASX dividend shares needs to consider not only large cap shares, but also reliable and growing small caps like these.

| More on:
man handing over wad of cash representing ASX retail capital return

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

One of the things I have learned over the years investing in ASX dividend shares is that this is not a spectator sport. In my view, investing for dividends requires regular analysis, review, and the willingness to make changes if required. For example, Telstra Corporation Ltd (ASX: TLS) was considered a rolled gold ASX dividend share for many years. And then one day, it wasn't.

The same could be said for our large banks like Commonwealth Bank of Australia (ASX: CBA), right up until the regulator put a cap on how much banks could distribute to shareholders. Moreover, a myth of ASX dividend investing is that it applies mainly to mid cap shares or larger. I have always rejected this premise. While large caps are more secure, small cap shares often pay higher dividend yields.

Small cap ASX dividend shares

New Energy Solar Ltd (ASX: NEW) currently pays a trailing 12 month (TTM) unfranked dividend yield of 9.1%. This is an infrastructure trust that buys, builds, and operates solar farms in Australia and the United States. It continues to ride a wave of government enthusiasm and spending and has positioned itself as a high margin provider of electrical power. The company's revenue stream is susceptible to changes in weather, yet it is currently priced at 39.4% less than its net asset value per share.

G8 Education Ltd (ASX: GEM) is an early learning and childcare company with assets predominantly in Australia, and some in Singapore. Over the past 10 years, the company has had a share price CAGR of 16.7%, enough to triple the initial investment in this time. Furthermore, it presently has a TTM dividend yield of 10.3%. As this is a 100% franked payment, it also carries a tax credit of 4.4%. Like New Energy, this company is also trading at a discount to its net tangible asset value of 42.9%.

Base Resources Limited (ASX: BSE) is an early stage, but producing, mineral sands company. At today's price this company has a TTM dividend yield of 14%, which is very large. However, this year was the company's maiden dividend payment. So there is some risk as to whether they will do so again. The company's net profit after taxes (NPAT) for FY20 was $39.6 million. This was a slight reduction on 2019 due to reducing ore grades. Nevertheless, the company intends to produce 700,000 tonnes in FY21, an increase of 50.2%.

Foolish takeaway

There are a few things investors can take away from this article. First, an effective ASX dividend paying portfolio needs to be actively managed. Second, small caps often pay more per share than large caps. Nonetheless, they are considerably more risky. Third, the dividend yield itself must be considered along with an evaluation of company performance, future growth plans, and management skill. 

Motley Fool contributor Daryl Mather 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.

More on ⏸️ Dividend Shares

falling healthcare asx share price Mesoblast capital raising
⏸️ Dividend Shares

Sonic Healthcare (ASX:SHL) dividend rises 7%, share price falls after FY21 results

Triple digit profit growth and a solid dividend was not enough to impress investors on Monday.

Read more »

A smiling woman with a handful of $100 notes, indicating strong dividend payments
⏸️ Dividend Shares

The Adairs (ASX:ADH) dividend more than doubled in FY21

A record financial result will see a generous dividend paid out to Adairs shareholders.

Read more »

A businessman on a road raises his arms as dollar notes rain down on him.
⏸️ Dividend Shares

The Newcrest (ASX:NCM) dividend boosted 129%

Newcrest marks its sixth successive year of increasing dividend payments to shareholders

Read more »

Happy couple laughing while shopping in supermarket
52-Week Highs

August has been a great month so far for the Woolworths (ASX:WOW) share price

We take a look at how shares in the supermarket giant have been performing ahead of the company's full-year results

Read more »

wine glass full of coins
⏸️ Dividend Shares

The Treasury Wines (ASX:TWE) dividend bumped up by 60%

Here's how Treasury Wines dividends for FY21 have stacked up.

Read more »

Young boy cries and covers eyes with torn money on table
⏸️ Dividend Shares

The Origin (ASX:ORG) dividend has dropped 20%

What's happened to Origin's dividends?

Read more »

two people hold a sheet above their head while making a bed in a room featuring homewares.
Retail Shares

How did the Adairs (ASX:ADH) share price respond last earnings season?

The homewares retailer will be looking for another year like last year when it releases its FY21 earnings tomorrow.

Read more »

Two men excited to win online bet
Share Market News

Why the Tabcorp (ASX:TAH) dividend was boosted by 32%

The strong performance of Tabcorp's business will see a combined FY21 dividend of 14.5 cents.

Read more »