These cashed-up dividend stocks could be bargains

Companies with large cash balances are often able to maintain generous dividend payments through lean periods. Today I'm looking at the latest trading figures from two small-cap dividend stocks with enough surplus cash to fund several years' dividends.

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Does founder exit spell trouble?

Shares of AIM-listed stockbroker Numis Corporation (LSE: NUM) fell by about 5% this morning, after the firm reported a 38% drop in pre-tax profit and said that founder and executive director Oliver Hemsley would step down.

The shock value of the firm's news may have been high, but closer inspection suggests that things aren't as bad as they might seem. Mr Hemsley will remain available in an advisory capacity and the firm's activity levels still seem attractive.

Revenue was down by 8% to £52.4m during the first half, while pre-tax profit fell to £10.5m, down from £16.8m during the first half of last year. This decline left first-half earnings down 34% at 8p per share.

However, that's still comfortably enough to cover the interim dividend of 5.5p per share, which was left unchanged. The group's net cash balance was also broadly flat, at £71.2m.

One problem with the Numis business is that profits can be quite lumpy. The company's biggest profits come from corporate transactions, such as flotations (IPOs). Last year was an exceptional year during which Numis completed 10 IPOs. The market for new flotations has been quieter so far in 2017, and the firm has only completed two so far.

However, "non-primary activity" such as placings remains strong, according to management. Numis says it has completed 10 corporate transactions since the start of April, generating more than £10m of fees. The board remains confident of meeting full-year expectations.

After today's fall, Numis shares trade on a forecast P/E of 10 with a prospective yield of 4.7%. The group's cash balance covers about 24% of its share price, giving solid support to the dividend. I think the stock rates as a potential buy at current levels.

Fast-growing cash machine

Shares of electronics supplier CML Microsystems (LSE: CML) rose by 7% this morning, after the company said that full-year profits for last year should be ahead of expectations.

CML said that unaudited figures indicated a pre-tax profit of £4.2m for the year ending 31 March 2017. That's a 26% increase on the £3.32m figure reported for 2015/16. The group's net cash balance remained broadly unchanged at £12.4m, despite the acquisition of Sicomm for £3.58m during the first half of the year.

Today's gains mean that CML shares are now worth 24% more than they were a year ago. That gain reflects the group's increased profits over the period, so I don't think it's excessive.

Although the stock now trades on a forecast P/E of 19 for 2017/18, earnings growth of 14% is forecast for this year. The group's cash balance and lack of debt means that the risk of financial problems is low and the forecast yield of 1.8% should be safe.

This small cap could have 47% upside

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Our top analysts believe that shares of this UK business could rise by as much as 47% from current levels. The company concerned has a track record of earnings growth and looks affordable to me at current levels.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.