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3 Small Cap Stocks with Sustainable Dividend Yields

by James Yeo // February 12, 2020

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Governments across the world has been cutting rates to bolster economic growth. Lower interest rates help companies pay less interest on their debt, which spurs them to take on more debt to fund their growth. However, it has an adverse effect to investors like us as banks’ fixed deposits are not attractive anymore. Astute investors are turning to listed companies which provide stable dividend yields as a place to ‘deposit’ their money. SGX has many small cap stocks that provide the function above. Here are 3 small cap stocks that have both attractive and sustainable dividend yields.

#1 Tai Sin Electric

Tai Sin Electric manufactures and distributes cables & wires, electrical and control products as well as provide testing and inspection services. It has geographical presence in Singapore, Malaysia, Vietnam, Brunei and Indonesia. As of the latest quarterly result, Tai Sin has a turnover of $80 million and a net profit of $3.17 million which was an impressive 431% from $0.597 million. It has a free cash flow of $5.604 million for this quarter. On a conservative basis, $15 million of free cash flow for the full year should be manageable by the company. The company has been paying out 0.021-0.024 dividend per share since 2012, and that would amount to roughly $10 million of cash outflow. The company has strong free cash flow to cover this dividend payment thus it the dividend payment has been relatively constant for the past 8 years. Tai Sin last traded at $0.32 which values it at a P/E of 11.11 and dividend yield of 7.03%.

#2 Lum Chang Holdings

Lum Chang’s primary business is focused on construction and has expanded its businesses to include property development, investment and interior finish works. As of the latest quarterly, Lum Chang has a revenue of $94.86 million, which was an amazing increment of 104% YoY. Net profit came in at $3.13 million, which was 210% YoY. Free cash flow was $2.39 million, and conservatively $9 million should be achievable as the full year for FY19 was approximately $24 million. The company has been paying out dividends in the range of 0.015 – 0.02/share since 2009. Dividend outflow amounts to about $5.7 million per year which is well within the conservative free cash flow expectations. Thus, the company can sustain the dividends distributed easily. Lum Chang last traded at $0.37, which values it at a P/E of 5.57 and dividend yield of 4.86%.

#3 CDW Holdings

CDW Holdings primarily produces and distributes niche precision components for mobile communication equipment, IT equipment, office equipment, and other electrical appliances. As of the latest quarterly results, CDW has a revenue of USD $24.17 million and a negative net profit of $0.820 million. Though net profit was negative, company has an impressive free cash flow of $1.25 million for the quarter. Conservatively, it should be able to hit USD $4-5 million of free cash flow for the year. The company has been paying out USD $0.009-0.012 dividend per share since 2012, and that would come up to approximately $2.5 million of cash outflow. The company has strong free cash flow to cover this dividend payment thus it the dividend payment has been relatively constant for the past 8 years. Moreover, it has a cash balance of USD $26.8 million which is more than 10 times of the dividend payment. CDW last traded at $0.18 and has a dividend yield of 8.50%.

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