Sunday, October 23, 2011

Highest Dividend Paying Shares - The Micro-Caps

Earlier this year I looked at the ASX100 from an income investor's point of view in Highest Dividend Paying Stocks In The ASX100.  Then I gave the Small Caps a going over in Best Dividend Paying Shares - The Small Caps.

Today we're going to look at Micro Caps.  For the purposes of this exercise, I'm going to define Micro Cap stocks as anything outside the ASX 300 (ie. anything outside the largest 300 companies listed on the Australian stock exchange).

So in this first table, you'll find the top 10 dividend payers.


ASX
Code
Company Name Current
Price
Dividend
Yield
Franking Payout Ratio
RHG RHG Limited $0.40 222.0% 100% 371%
RDG Resource Development Group Limited $0.24 139.0% 0% 1546%
BTC BioTech Capital Limited $0.09 70.6% 0% -128%
AIQ Alternative Investment Trust $0.55 69.1% 0% -428%
LRG Longreach Group Limited $0.18 55.6% 0% -943%
AYT Adelaide Managed Funds Asset Backed Yield Trust $0.27 19.8% 0% 100%
THG Thakral Holdings Limited $0.51 19.6% 0% -483%
JMB Jumbuck Entertainment $0.09 17.7% 100% -42%
SHV Select Harvests Limited $1.47 17.0% 100% 39%
AGJ Agricultural Land Trust $0.17 14.4% 0% 91%
Highest Yielding Micro-Caps

I don't know about you, but the first thing that struck me about the list above are dividend yields of 222%, 139% and so on.  I suspect these yields are not sustainable.

For example, there is no way that RHG Group will pay out an 89 cent dividend again next year.  This year was an anomoly and the result of a special dividend in order to return some excess cash to shareholders.

Since I am looking for a high but sustainable dividend yield, I'm going to use the payout ratio to eliminate those companies which are unlikely to maintain their high dividend payments.  The payout ratio expresses the dividend amount as a percentage of profits.  So a ratio of over 100% means they are paying out more than they earn - that can't continue.  And a negative ratio means they were paying a dividend when though they were making a loss.

So let's remove those companies with a payout ratio greater than 100% and less than 0% (negative).

ASX
Code
Company Name Current
Price
Dividend
Yield
Franking Payout Ratio
SHV Select Harvests Limited $1.47 17.0% 100% 39%
AGJ Agricultural Land Trust $0.17 14.4% 0% 91%
MUE Multiplex European Property Fund $0.18 13.9% 0% 36%
VTG Vita Group Limited $0.25 12.7% 100% 65%
WIC Westoz Investment Company Limited $0.92 12.0% 100% 74%
IFM Infomedia Limited $0.20 12.0% 100% 73%
AKU Australian Masters Corporate Bond Fund No3 Limited $49.58 11.8% 100% 96%
OZG Ozgrowth Limited $0.15 11.7% 100% 48%
AIR Astivita Renewables Limited $0.70 11.4% 100% 55%
RCT Reef Casino Trust $1.77 11.3% 0% 65%
High Dividends / Realistic Payout Ratio

Okay, that got rid of those ridiculously high yields, although there are still some high numbers there.

The next thing I'm going to do is remove Listed Investment Companies, Real Estate Trusts and other Investment Trusts.  I'm most interested in real operating businesses.

ASX
Code
Company Name Current
Price
Dividend
Yield
Franking Payout Ratio
SHV Select Harvests Limited $1.47 17.0% 100% 39%
VTG Vita Group Limited $0.25 12.7% 100% 65%
IFM Infomedia Limited $0.20 12.0% 100% 73%
AIR Astivita Renewables Limited $0.70 11.4% 100% 55%
MCP McPherson's Limited $2.32 11.2% 100% 66%
PFG Prime Financial Group Limited $0.14 11.1% 100% 64%
CGO CPT Global Limited $0.52 10.7% 100% 88%
MLB Melbourne IT Limited $1.41 10.4% 100% 74%
MOC Mortgage Choice Limited $1.26 10.3% 100% 57%
BSA BSA Limited $0.20 10.3% 100% 41%
Final List

The final list still looks impressive from an income producing point of view.  All 10 stocks yield over 10% and they are all fully franked.

Further Research Required

Remember these are micro caps - the minnows of the ASX.  They're normally less mature and less diversified than their larger counterparts.  Because of their small size, they are quite often not covered by stock broker research reports or by other investment research services.  This means you'll have to roll up your sleeves and do your own research.  It may be time consuming but the rewards can be worth it.

If I were looking at any of these shares for income, the next thing I would do is work out whether I thought the dividend payout levels were sustainable.  I would look at each company's history of paying dividends.  Have they made consistent payments?  I would also look at their ability to pay.  Do they have sufficient free cash flow?  Debt is another import one for me.  I like to see minimal debt on the balance sheet.

However, the reality is that while high dividend yield is nice to have, many investors would be picking over these companies looking at the potential for capital growth.  It is possible that smaller companies today can be larger companies in the future.  The trick is to work out which ones will succeed in that quest

4 comments:

Alaina Ellington said...

Thank you for your submission to A Carnival for Saving and Making Money!

-Living Simplistically

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