3 cheap small caps with big dividends flying under the radar

Should you jump on these 3 smaller companies before the professional fund managers discover them?

| More on:
a woman

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

While most of the market focuses on the top end of town, a small number of investors are looking at the opposite end. Those small-cap companies that have the potential to become large caps over time.

The main reason is quite simple. A small cap company can generate huge growth more easily than say the likes of Telstra Corporation Ltd (ASX: TLS) or Commonwealth Bank of Australia (ASX: CBA). Both those behemoths are currently struggling to generate revenue growth of more than 5%.

Here are three companies that could grow up to be much bigger one day…

LandMark White Limited (ASX: LMW)

A small property valuation company with a market cap of just $19 million, LandMark White recently reported a 14% increase in revenues to $28.2 million and a net profit after tax of $1.7 million – up 113% compared to the 2015 financial year (FY15). The company also declared a fully franked final dividend of 3.25 cents, taking total dividends to 4.5 cents per share. On those numbers, LandMark White shares are trading on a P/E of 11x and paying a trailing yield of 6.5% – which grosses up to 9.2%. The future looks bright too with LandMark White saying it is well positioned to grow.

Schaffer Corporation Limited (ASX: SFC)

Schaffer is an odd, diversified industrial company with core operations in building materials, automotive leather and property. The Automotive Leather division is the largest and generates around two-thirds of revenues, with building materials generating most of the remaining third. Schaffer – with a market cap of $72 million – recently reported revenues of $187.2 million and a net profit after tax of $5.7 million. The company also declared a 25 cent fully franked dividend. On those metrics, Schaffer's shares are trading on a P/E ratio of 12.6x and yielding 4.9% fully franked.

Villa World Ltd (ASX: VLW)

A property developer, Villa World is the largest of the three companies with a market cap of $279 million at the current share price of $2.46. Today the company reported stellar 2016 financial year results, with revenues up 20%, earnings per share up 19% and dividends up 13%. The group has a good track record in the past few years of growth, with revenues of $387 million and NPAT of $33.7 million this financial year. That places shares on an undemanding P/E ratio of 8.3x and with an 18 cent dividend per share, a yield of 7.3% – fully franked – which grosses up to more than 10% when franking credits are included. Villa World expects to see at least 5% growth in NPAT in FY17 and a dividend of at least 18 cents again.

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. 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 Bruce Jackson.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »