2 overlooked small-cap dividend growth stocks for retiring investors

When I'm looking for stocks to include in my retirement portfolio, I'm looking for companies that have a record of creating value for investors and have a long runway for growth ahead of them.

If they tick both of these boxes, then I can progress with the rest of my research process with the ultimate aim of buying the shares.

Recruiter Robert Walters(LSE: RWA) is one such business that I believe meets both of the above criteria. Over the past 15 years, the stock has produced a total return for investors of 16.7% per annum, turning an initial investment of £1,000 into £11,000. It also looks as if the company can continue on this trajectory.

Global growth

Robert Walters recruits skilled professionals in industries such as financial services and technology, sectors that are likely to see continued high demand for skilled staff, no matter how many low skilled jobs technology replaces.

With operations around the world, it is ideally positioned to capitalise on the rising demand for skilled workers. Indeed, today the company reported that group net fee income for the second quarter of 2018 leapt 18% year-on-year.

The entire group is growing with the most substantial growth coming from Robert Walters's 'Other International' operations (excluding Asia Pacific and Europe), which saw net fee income rise 29% in constant currency. With the business firing on all cylinders, I'm excited to see what the future holds for the share price.

At the end of June, the firm's net cash balance was £22.9m, more than enough to support the current level of dividend, which is currently costing £6.1m per annum. While the dividend yield stands at only 1.9%, analysts have pencilled in payout growth of 15% for 2018 and 11% for 2019. With revenue growth in the double-digits, it certainly looks as if the group can meet these targets.

A forward P/E of 16.4 might look expensive, but considering historical returns, and future growth potential, I believe that it is a small price to pay for this wealth creating machine.

Huge opportunity

Another firm that looks as if it meets the criteria for my retirement portfolio is homebuilder MJ Gleeson(LSE: GLE).

This company has benefited tremendously from the current housing boom with net profit up nine-fold over the past six years. Shareholders have profited handsomely as well over this period with a total average annual return of 20.6%. The big question is, whether or not the group can continue to produce outstanding returns for investors?

City analysts believe it can, or at least it can for next two years. Earnings growth of 11% is projected for 2018, and 10% for 2019.

And I believe that over the long term there is a tremendous opportunity for growth here. Gleeson is still a relatively small homebuilder with only 1,225 homes completed for the financial year to the end of June. In 2017, management set out to double sales to 2,000 homes per year within five years, a target underpinned by the firm's land bank of 12,852 plots.

So the firm has the tools to keep earnings growing and with a balance sheet stuffed full of cash, there is also plenty of scope for dividend growth. The payout has already risen five-fold since 2015, and Gleeson's yield currently stands at 3.7%. With further growth on the horizon, in my opinion, this is one company that's undoubtedly worth extra research.

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Rupert Hargreaves owns no share 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.