small cap stocks with dividends

Yes, you read that right.

Small cap stocks can also pay dividends, and handsome dividends to bout.

That said, dividend investors would do well to pay attention to 4 important points for dividend stocks:

  • Business Model proves feasible for recurring dividends
  • Dividend payouts are not exceeding 100% and sustainable
  • Dividend yields should at least be decent >3%
  • Dividend growth track record

With the above in mind, we have searched and found 3 small cap stocks on SGX that have increased their dividends for the past 10 years:

#1 Powermatic Data Systems Ltd

Powermatic Data’s revenue was derived primarily from the sale of wireless connectivity products which include Wi-Fi modules, embedded boards and antenna.

  • Their 2 business models include sale of proprietary products, OEM ( Original Equipment Manufacturing ) and ODM ( Joint Design Manufacturing).
  • The wireless connectivity products are deployed in various industries – security surveillance , outdoor excess points, Wi-Fi connections in transportation business etc.

In FY2020, the key markets of our products are Asia (43% ), USA (33%, Europe (20%) and other regions (4%).

As of the latest FY2020 report, Powermatic’s revenue increased by a 4% year-on-year from S$ 20.95 million in FY2019 to S$ 21.76 million in FY2020.

Its net profit increased by 25% year-on-year to S$8.73 million on the back of:
i) higher gain in foreign exchange following the strengthening of US$ against S$ in FY2020;
ii) higher interest income earned in FY2020 as compared to FY2019.

Powermatic Data’s dividend has increased by a CAGR of 23% over the past ten years from $0.01/share to $0.08/share in 2019. Its dividend payout ratio is still manageable at a 32% given a $0.08 dividends per share and $0.2499 earnings per share. This also shows that Powermatic data has a pretty conservative dividend policy despite the strong dividend growth track record.

Powermatic Data last closed at $2.44, which values it at a trailing P/E ratio of 9.7x and dividend yield of 3.2%.

#2 Micro-mechanics Holdings Ltd

Micro-Mechanics designs, manufactures and markets high precision parts and tools used in process-critical applications for the semiconductor and other high technology industries. The group has 5 manufacturing facilities across Singapore, China, Malaysia, Philippines and USA.

As of the latest quarterly report, Micro-mechanic’s revenue increased by 12.9% to $ 16.2 million. Its net profit increased by an impressive 48.1% to $3.87 million. Free cash flow was healthy and came in at $3.79 million. Cash balance was at $16.1 million.

Mirco-mechanics’s dividend has increased by a CAGR of 17.1% over the past ten years from $0.02/share to $0.1/share in 2019. Extrapolating from the quarterly results, Micro-mechanics has a free cash flow of $15.2 million for the whole year.

Total dividend payout with $0.1/share will amount to $13.9 million. This shows that cash generated from the operations of the company is sufficient to cover the dividends of the company.

Micro-mechanics last closed at $1.81, which values it at a P/E ratio of 18.75 and dividend yield of 5.52%.

#3 United Overseas Insurance Limited

United Overseas Insurance (UOI)’s principal activities are the underwriting of general insurance business and reinsurance.

General insurance covers a broad spectrum of classes of insurance, among which are fire, marine, motor, engineering, general accident and liability business.

As of the latest quarterly report, UOI’s revenue increased by 0.6% to $ 28.0 million. Its net profit dropped by 67.6% to $3.7 million. Free cash flow came in at negative $10.4 million. Cash balance was at $33.5 million.

The weaker results were due to an unrealised fair value loss on the investments. This is likely due to the decrease in assets value when COVID-19 started spreading across the world in March 2020.

UOI’s dividend has increased by a CAGR of 13.9% over the past ten years from $0.06/share to $0.22/share in 2019. UOI has been prudent in its capital management and using 2019’s earnings per share, UOI has a dividend payout ratio of 33.3%.

This shows that UOI has not only been prudently managing its dividend payout, it has also sustainably increased its dividends per share.

UOI last closed at $6.78, which values it at a P/B ratio of 1.03x and dividend yield of 2.51%.

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