3 small cap ASX dividend shares to buy

The 3 small cap ASX dividend shares in this article could be worth owning in 2021. One of those picks is Nick Scali Limited (ASX:NCK).

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Blue chips aren't the only businesses to pay dividends. Small cap ASX dividend shares could also be worth considering for income.

Here are three different smaller businesses to look at:

Nick Scali Limited (ASX: NCK)

Nick Scali currently has a trailing grossed-up dividend yield of 7.1%.

Fund Manager Matt Williams from Airlie Funds thinks Nick Scali is going to benefit from a lower unemployment rate and consumers could continue to benefit from the government stimulus.

The small cap ASX dividend share has a market capitalisation of around $772 million according to the ASX. It has been steadily increasing its dividend over the past several years. 

In FY20 it grew the final dividend by 12.5%, meaning the total FY20 dividend grew by 5.6% to 47.5 cents.

The furniture business said that in the first quarter of FY21 its sales orders were up 45% and this trend continued into October. There were store closures in Melbourne and Auckland during the quarter, so when excluding times when any stores were shut total comparable store sales orders grew by 59% in the FY21 first quarter.

Nick Scali was still generating large online sales growth – up 47% in the first quarter of FY21 – and management are expecting the earnings before interest and tax (EBIT) from online to be higher in FY21 than expected.

The company is now expecting net profit after tax (NPAT) in the FY21 first half to grow by 70% to 80%.

Propel Funeral Partners Ltd (ASX: PFP)

Propel currently has a trailing grossed-up dividend yield of around 5%.

The funeral business is exposed to long-term tailwinds of Australia's ageing population. Death volumes are expected to grow by 1.4% per annum between 2016 to 2025 and then increase by 2.2% per annum from 2025 to 2050.

COVID-19 caused a lot of disruption during 2020 to the small cap ASX dividend share. Not only was funeral attendance limited, but in the first quarter of FY21 death volumes were materially below historical long term trends in key markets where Propel operates. Flu cases in Australia were down around 99% compared to the 5-year average.

In terms of financial performance, in the first quarter of FY21 operating earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 18% to around $10.5 million. Average revenue per funeral growth compared FY20 was in the company's target range of 2% to 4%. Total funeral volumes were higher than the prior corresponding period and its "strong" cash flow conversion was maintained.

Propel is projecting growth for the rest of the year with the company expected to benefit from death volumes reverting to long term trends, given the growing and ageing population.

Pacific Current Group Ltd (ASX: PAC)

Pacific has a trailing grossed-up dividend yield of 8.1%.

FY20 was a year of growth for the company. Underlying earnings per share (EPS) went up by 40% to $0.51 cents which helped the total dividend grow by 40% to $0.35 per share.

Pacific is a business that invests in fund managers and then brings resources to help the manager grow such as using its financial capabilities or its expertise.

At the company's annual general meeting (AGM), Pacific explained that it is focused on growing the existing business, diversifying its portfolio and seeking new revenue sources. It's going to keep looking for compelling investments, open up new distribution channels and perhaps launch a private fund to invest alongside Pacific, where it would receive management fees revenue and co-investment rights.

The small cap ASX dividend share is expecting to make at least two investments in FY21.

Dean Fremder of Perpetual Limited (ASX: PPTsaid when Pacific Current shares were approximately 10% lower: "The stock's really cheap. It's on nine times earnings. It's growing earnings at double digits, so more than 10% a year. It is paying a 6.5% fully franked yield. And most excitingly, we think they can pay out a much larger portion of their earnings as dividends. We see no reason, given the surplus franking credits they have on the balance sheet, they can't be paying a 10 or 11% fully franked yield in the next 12 months. So, really excited about that one."

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Propel Funeral Partners Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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