Capital upside and a dividend? Here are the 29 small caps that actually pay a dividend
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It’s not all that common for small cap stocks to pay a dividend, yet they account for nearly 80 per cent of the listings on the ASX.
Of the over 2100 stocks listed on the Australian bourse, 1654 are small caps with a market cap of less than $500m.
And of those 1654, less than 2 per cent — or just 29 stocks — actually pay dividends.
The junior resources, and health and biotech plays are the ones least likely to pay a dividend because they don’t generally have too much cash flow beyond what they raise from the market.
On the resources front, it can take up to 10 years, sometimes longer, to turn a new discovery into a fully operational mine. S&P Global Market Intelligence’s research suggests that it can take as long as 20 years to advance from discovery to production.
Either way, there is usually very little cash coming in the door for a good chunk of a junior explorer’s life.
Therefore the trend is for an explorer to advance a new discovery as far as they can, either solo or with a partner, and then eventually get swallowed up by a larger player or sell off the asset to someone that can take it into production – hopefully in the process making the explorer more money than they spent.
It is a similar story on the health and biotech side. Most small caps will start out developing a drug or device, hitting the market up along the way to fund research and clinical studies, before being bought out or selling their drug development to big pharma to commercialise.
So, it’s probably no surprise that there are just three small cap miners and one small cap health stock that are paying dividends.
Here’s a list of the small caps paying dividends (The table was jointly compiled by Stockhead and Peak Asset Management).
Scroll or swipe to reveal table. Click headings to sort. Best viewed on a laptop:
|ASX Code||Company||Industry||Share Price March 7||DPS 2020 - interim||DPS2019 - Final||DPS 2019 - Interim||DPS 2018 final||DPS 2018 - Interim||Market Cap|
|MRC||MINERAL COMMODITIES||Mineral Sands/Graphite Production||22c||0.6c||0.7c||0.6c||$103.2m|
|SST||STEAMSHIPS TRADING COMPANY||Trading||12||42.3923c||9.2998c||13.5886c||15.9908c||$372.1m|
|TRS||THE REJECT SHOP||Retail||2.75||10c||11c||$86.7m|
|ABA||AUSWIDE BANK||Financial Services||5.59||17c||18.5c||16c||18c||$243.4m|
|CDP||CARINDALE PROPERTY TRUST||Real Estate||5.43||18.1c||18.1c||20.1c||18.1c||$395.5m|
|LYL||LYCOPODIUM||Engineering, Construction, Procurement and Project Management||5.3||15c||15c||18c||15c||$222.1m|
|VRT||VIRTUS HEALTH||Reproductive Service s||4.07||12c||12c||12c||12c||$326.4m|
|PFP||PROPEL FUNERAL PARTNERS||Funerals||3.32||4c||5.8c||5.7c||6.4c||$328.8m|
|FID||FIDUCIAN GROUP||Financial Services||4.95||11.5c||11.3c||11c||11c||$156.6m|
|RND||RAND MINING||Gold Production||2.05||10c||10c||$123.3m|
|TCO||TRANSMETRO CORPORATION||Hotel Operator||1.26||10c||$16.9m|
|FFI||F.F.I. HOLDINGS||Food Manufacturing & Distribution||4.99||11c||12c||10c||10c||$53.8m|
|ENN||ELANOR INVESTOR GROUP||Investment Fund||1.915||9.7403c||9.5102c||8.6065c||6.3248c||$232.6m|
|HOT||HOTCOPPER HOLDINGS||Communications & Media||13c||0.5c||$24.6m|
|BRL||BATHURST RESOURCES||Coal Production||9c||0.255c||$159m|
|CGO||CPT GLOBAL LIMITED||Information Technology||22c||0.5c||0.25c||0.25c||$8.23m|
|8IH||8I HOLDINGS||Financial Services||10c||$36.2m|
|PFG||PRIME FINANCIAL GROUP||Financial Services||7c||0.2c||0.2c||0.2c||0.45c||$13.6m|
|KPG||KELLY PARTNERS GROUP HOLDING||Accounting Services||88c||1.1c||1.21c||1c||1.1c||$40.9m|
|SWK||SWICK MINING||Mining Services||16c||0.3c||0.6c||$48.8m|
While the number of small caps that paid a final dividend in 2019 is pretty much on par with 2018, it appears there were more small caps paying interim dividends last year than in 2018 – three times as many in fact.
Retailer The Reject Shop (ASX:TRS), for example, didn’t pay an interim dividend in 2018, but in 2019 it paid 10c a share, or just under $3m, back to shareholders.
Mining services contractor MACA (ASX:MLD) also didn’t pay an interim dividend in 2018, but in 2019 it paid an interim dividend of 2c per share and a final dividend of 2.5c share, equating to a total shareholder payout of $12.1m for 2019.
Bathurst Resources (ASX:BRL), which produces coal in New Zealand, had not previously paid dividends, but declared a maiden final dividend of 0.255c per share for 2019, which returned a total of $5.5m to shareholders.
But while more small caps paid interim dividends in 2019, the payout ratios have been starting to slip and some have been holding back on paying dividends altogether.
Mineral Commodities (ASX:MRC) paid $3.8m worth of interim dividends during 2019, the same amount it paid for the whole of 2018, but said it had deferred a decision on declaring a final dividend for the full year ended December 31, 2019.
Its interim dividend payout for the first half of FY20 came in 37.5 per cent lower at 4c per share, holding back nearly $2.4m from shareholders’ bank accounts.
Niv Dagan, executive director at boutique investment firm Peak Asset Management, said with the recent global market selloff, it appeared that Australian companies were holding back on increasing their dividend payouts to investors.
“In particular, the uncertainty relating to the coronavirus combined with weak retail spending, lack of wage growth, falling infrastructure spending and a weak global macro-outlook, has meant that corporate Australia is being defensive,” he explained.
“Swick Mining (SWK) for instance has slashed their dividend payout ratio by 50 per cent, on the back of a weakening outlook.”
The way people are investing is also changing.
In the past investors have typically favoured the big banks (NAB, Westpac, Commonwealth Bank, ANZ) and the large telcos such as Telstra, due to the defensive nature of their earnings, according to Dagan.
“However, as net interest margins fall, combined with higher fixed costs and inflated balance sheets, many of the banks have had to tap investors in the form of hybrids,” he said.
“Given interest rates are likely to fall further over coming months, hybrids have come under pressure of late, as investors look for certainty.”
Hybrids are stocks that combine elements of debt securities and equity securities.
According to the ASX, hybrids typically promise to pay a rate of return (fixed or floating) until a certain date, in the same way debt securities do. But there is also the opportunity for a higher rate of return than regular debt securities because of the equity-like features hybrids have.
The good news is that while companies may be cutting dividend payout ratios now, they won’t be doing it forever. But as to when this will happen depends on when global central banks roll out further economic stimulus measures.
“We expect global central banks, including the RBA to unleash further bond purchases to combat weakening global growth,” Dagan said.
“This in time, should see dividend payout ratios return to levels last seen back in 2017/18, however not without a fight.”