11 small-cap income stocks the fundies like

So, the average gross yield on this basket of stocks is 5.3%. Risk of capital loss can’t be blended away, but I think the process we’ve taken above has delivered good quality companies, and hopefully a higher probability of doing better than the market averages in falling markets - whilst paying a reasonable (and growing) dividend stream.

Marc Whittaker, Investors Mutual

Events Hospitality and Entertainment (EVT): Yield: 4.1%

Event owns two substantial businesses – cinemas and hotels.

• Its cinema business in Australia and New Zealand is made up of Event and Greater Union cinemas, its GU Filmhouse for smaller, arthouse audiences, as well as its cinema technology supply business, Edge. Event also operates Moonlight open-air cinemas across Australia and Sydney’s iconic State Theatre.

• Its Australian hotel business consists of QT Hotels & Resorts, Rydges, Atura Hotels and Thredbo Alpine Resort.

The company’s valuation is underpinned by a significant and strategic property portfolio. The company also maintains a conservative balance sheet that may be strengthened further through the proposed sale of its German cinema assets. The company offers a fully franked 4.1% yield at current prices.

Events is led by a relatively new and capable management team, who is leading innovation in formats and product development. The new arthouse hotel offering QT Hotels is an example of a new and innovative format that is outperforming in terms of occupancy and room rates in what is a softer hotel market.

A2B (A2B): Yield 5.5%

A2B (previously known as Cabcharge) is a payments platform provider and operator of taxi networks – that also represents a high-quality income stock.

While the company continues to reinvest significantly into its customer and technology offerings, it continues to generate strong free cash flow, it holds a net cash balance sheet and given the relatively low payout ratio of 60%, has the capacity to continue to grow its dividend over time. The company is also attractively priced, trading on a fiscal 2020e earnings multiple of 13x and a yield of 5.5%.

Over the last few years, in the face of intense competition from other ride-sharing providers, A2b made the decision to increase its investment in technology, marketing and fleet. The business continues to face a dynamic operating environment, but the strategy of Management and the Board now has the company better positioned, with a return to growth envisaged in its Service and Network businesses. Given this, we see the company growing earnings – and dividends – over time.

Summary

While small caps are known for their capital growth, if you know where to look, some provide a reasonable and reliable dividend as well. 

For example, one of the richer dividend yields here is Shaver Shop at 7.0%, which has also seen its share price gain 51.7% over the last 12 months. The highest yield was Elanor Investments at 7.5%, the share price of which has jumped more than 20% year to date. 

Looking at the full list, the average yield quoted by the managers is 5.0% (with most of them fully franked). And while three of the stocks have lost ground over the last 12 months (A2B -25.8%; MIN: -5.6%; EVT: -2.5%), on average, the group has tracked higher and the share prices have gained 13.4% on average. 

Capital growth AND income... like the old el Paso girl said, 'Why don't we have both'!

If you enjoyed this take a look at the process the managers use to screen stocks outside the ASX 50 and then some of the red flags that can knock a stock off the shortlist. Please hit FOLLOW to be the first to get my next wire.