My portfolio is dominated by small caps because they offer the opportunity for outsized returns. Here are three small cap stocks for your consideration paying substantial dividends and with the potential to deliver significant capital appreciation.
Shriro Holdings Ltd (ASX: SHM) is a distributor of home and consumer appliances. Some of the company's brands include Casio, Omega and Blanco.
In its first year as a listed entity, Shriro delivered net profit after tax (NPAT) of $12.4 million smashing its prospectus forecast by 24%. The 2015 result was also 39.3% up on the previous year's result of $8.9 million.
The company's dividend policy is to pay out 60% of NPAT and so the stock has a stonking dividend yield of 7.3% based on 2015 results.
In a similar strategy to Breville Group Ltd (ASX: BRG), Shriro is teaming up with celebrity chefs to promote its products. It has launched the Neil Perry Kitchen under its Omega brand and recently announced that Heston Blumenthal will be the face of its Everdure barbecue range.
Shriro's fortunes are partly tied to the housing market which might explain why the shares are so cheap. It is trading on a price-to-earnings ratio (PER) of just 8.2 based on last year's results.
Similarly, some investors may consider Fiducian Group Ltd (ASX: FID) risky because of its exposure to financial markets. The group provides investment services under an integrated model and its main business segments include platform administration, financial planning and funds management.
On Monday, Fiducian announced an impressive set of results for 2016 with underlying NPAT up 22.4% to $7 million and underlying earnings-per-share (EPS) up 21.5% to 22.6 cents. Dividends rose 25% to 12.5 cents for the year and so the stock comes with a solid dividend yield of 4.2%.
Total funds under management, advice and administration (FUMAA) are the main driver of Fiducian's performance and these were up 16% to $4.7 billion in 2016. The group will look to continue to grow FUMAA via acquisitions and organically by delivering excellent service. Over the past 10 years, Fiducian's funds have delivered top quartile performance 36 out of 37 times compared to Australian and International managers according to Morningstar.
Fiducian acquired financial planners with a total of $243 million under advice during 2016. Once acquired, the group can often bring clients across to its administration platform and managed funds thereby capturing a higher fee percentage.
Despite a 10.7% rise in share price yesterday, Fiducian is trading on a reasonable PER of 13.2 based on 2016 results.
Elanor Investors Group (ASX: ENN) is also a fund manager but operates in the property sector, with a particular emphasis on tourism and retail. The group invests its own capital as well as that of others, usually in its managed funds alongside its clients.
Elanor expects to deliver core EPS of 16.2 cents in 2016, up 14.8% on 2015 and a total distribution of 14.6 cents, up 22.7% from a year earlier. This implies a PER of 13.1 and a terrific dividend yield of 6.9% at current prices.
The company recently raised $30 million of equity and will use the proceeds to launch an ASX listed real estate investment trust (REIT) and a private commercial property fund. It intends to retain a holding of 15% in both funds and hopes to earn at least double-digit returns for shareholders from management fees and its share of distributions.
Elanor owns a valuable property in Merrylands Sydney, with planning permission for 540 apartments and a substantial area of retail space which it has recently put up for sale. It was acquired in July 2014 as part of the John Cootes furniture chain and is valued at $16.3 million in Elanor's accounts. However, the sale price is likely to be much higher than its book value and so the company expects to realise an "outstanding profit" on the property.
