You'll have seen it in the news recently. 'Small caps are the place to be!' Or maybe they always have been, but you've always bought the miners. Or your advisor/fund manager has got you in a portfolio dominated by bank shares.
I'm not saying that's wrong. The banks have strong monopolies and pay great dividends. The miners…well, they'll perform strongly when commodities rebound.
But one thing those businesses aren't doing is growing. Oh no. With higher capital requirements, rising bad debts, and a slowdown in lending activity, the banks aren't likely to grow your investment for you.
So you want to make a change – you've heard small caps are the place to be – but you love those tasty dividends?
Take out a subscription to The Motley Fool's Hidden Gems service. That's what I'd do. But in the meantime, since Hidden Gems only opens to new members rarely, here are two high-yielding small cap stocks that look attractive today.
Thorn Group Ltd (ASX: TGA) is a consumer and business leasing company behind the Radio Rentals brand. Acquisitions a couple of years ago have distracted management in recent times, but with the sale of the credit management business and the refocusing on the core – and more rewarding – leasing segment, Thorn looks to have been oversold. Cash flows are strong and dividends appear sustainable, plus the company has been reducing compliance risk which should stand it in good stead going forwards. That, and it pays a 6.7% fully franked dividend.
Contango Microcap Ltd (ASX: CTN) is a listed investment company that's been around since 2004, and returned an average of 16% per annum since that date. Jealous of the fundies that made ~20% in small caps last year? Contango was one of them. The company recently sold its funds management business to another entity, but will retain the fund as its investment advisor and the focus will remain on small cap stocks. This does add risk to the investment going forwards, but Contango's performance so far has spoken for itself and it pays an attractive 5.8% dividend, partly franked. It's also trading in line with Net Tangible Assets of ~$1.10 per share.
Who says you can't have your cake and eat it too?
