More and more yield-hunting investors are trying to find a place to park their money. Even if it isn't for a long-term investment, the notion of interest rates falling even further has got fixed income investors and bank savers moving for cover.
Fortunately for them, company dividends have been on the rise as the S&P/ASX 200 Index (ASX: XJO) (Index: ^AXJO) climbs closer and closer to 6000. That helps keep yields relatively high.
However, as more investors chase after the same group of large and mid-cap stocks offering high yields, their buying can push share prices up, leading to decreasing yields. That kind of crowded trade starts to make small-cap stocks more attractive.
With the smaller market cap comes more volatility. The Australian Financial Review recently reported that small-cap stocks had their fifth straight year of negative earnings revisions, based on analysis by Credit Suisse. So investors who may be seeking higher yields could be buying small-cap stocks with weak earnings growth.
That means investors will have to be quite selective in this section of the ASX.
In the article, a Citigroup analyst listed a group of small-caps that have above average return on equity and relatively low price/earnings ratios. Here are two of the group that could offer both growth and a good yield.
Super Retail Group Ltd (ASX: SUL), the specialty retailer with brand stores like Supercheap Auto, Rebel Sport, BCF and Amart Sports, has a 4.2% yield fully franked. The stock is still down 17% over the past year, yet in the last three months has climbed more than 36%. Retail trade still isn't strong, but lower interest rates and petrol costs could see shoppers back in stores with extra cash to spend. Super Retail could be looking up from here, so today's prices may be good buying opportunity.
Salary packaging and vehicle leasing service provider McMillan Shakespeare Limited (ASX: MMS) is another that made the list with its 4.5% fully franked yield. It trades at 14 times forward earnings, which is in the middle of its past PE range. That's very attractive since analysts expect earnings to grow an average 16% annually over the next several years. That projected growth rate combined with such a high yield makes McMillan Shakespeare very cheap looking. It could be a good earner and grower for Foolish investors.
