There are some ASX dividend shares that have small market capitalisations but large dividend yields.
These are businesses that are already paying shareholders some of the profit each year, but they are earlier on in their expansion plans.
Here are those small dividend-paying businesses:
Propel Funeral Partners Ltd (ASX: PFP)
Propel has a trailing grossed-up dividend yield of 4.8%. According to the ASX, it has a market capitalisation of $295 million.
It’s the second largest funeral operator in Australia and New Zealand. Propel’s core business is regional funeral businesses, though it’s also looking to expand into metropolitan areas as well. For example, it recently acquired the Dils Group which operates primarily on the North Shore of Auckland in New Zealand.
In FY20 the ASX dividend share grew revenue by 16.5% to $110.8 million, volumes grew by 17.6% to 13,300 and the average revenue per funeral increased by 1.6% to $5,672. Operating earnings before interest, tax, depreciation and amortisation (EBITDA) went up 36.4% to $32.4 million and operating net profit after tax (NPAT) grew by 6.5% to $14.2 million.
In the first quarter of FY21 it reported 18% growth of operating EBITDA of $10.5 million, with average revenue per funeral growth within the target range of 2% to 4%. It also reported total funeral volume and strong cash flow conversion.
For FY21 and beyond it’s expecting a growing and ageing population, with acquisitions likely to help earnings too. 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.
Pacific Current Group Ltd (ASX: PAC)
Pacific has a trailing grossed-up dividend yield of 8%. According to the ASX, it has a market capitalisation of $320 million.
It’s a business that invests in other fund managers that it thinks have good growth potential. Pacific Current helps fund managers grow with both its expertise and capital.
One of the investments that the ASX dividend share previously made, GQG, is currently delivering most of the growth of funds under management (FUM) at the moment. In FY20 FUM grew by 62% to $93 billion, which helped underlying earnings per share (EPS) rise 18% to $0.51. This in turn supported a 40% increase of the dividend per share to $0.35.
In the quarter ending 30 September 2020, Pacific Current saw FUM rise by another 14% to $106.4 billion.
Dean Fremder of Perpetual Limited (ASX: PPT) said when Pacific Current shares were a bit lower: “The stock’s really cheap. It is on nine times earnings. It’s growing earnings at double digits, so more than 10% a year. It’s 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.”
Pengana Capital Group Ltd (ASX: PCG)
Pengana has a trailing grossed-up dividend yield of 6.8%. According to the ASX, it has a market capitalisation of $170 million.
This ASX dividend share is a business that aims to service retail investors. At the end of November 2020, it had $3.5 billion of FUM.
It runs a variety of investment strategies – Australian multi-caps, Australian small caps, global multi-caps, global small caps and global private equity.
Pengana says that it has a sticky and loyal client base of financial advisors, retail and high net worth individuals with more than 20% of FUM in listed vehicles, which provides a stable pool of FUM.
One of the ways that Pengana plans to grow is overseas expansion. It bought two thirds of Lizard Investors in the US, and plans to help it increase its FUM whilst also transforming Lizard into a platform for managing other strategies.
Lizard intends to launch at least two more strategies over the next year. Management believe there is potential to build this business over the longer term so that it rivals the scale of Pengana’s Australian business.
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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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