Two 5% small-cap dividends at bargain basement prices

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McColl's

A few weeks ago, my local Co-Op store was taken over by McColl's Retail (LSE: MCLS), and I confess it's a company I hadn't really looked at as an investment possibility.

Tasty dividends

But now that I have, I like what I'm seeing. It's a smaller company with a market cap of under £240m, yet it's handing out dividends that bigger supermarket chains like Tesco have only been able to dream of in recent years.

The 10.2p per share paid by McColl's in 2017 provided a yield of 5.7%, and the only reason the 10.3p forecast for this year would yield only 5.1% is that the share price has appreciated in the meantime -- it's up 29% over the past 12 months to 207p. The yield is expected to rise to 5.5% in 2018, so it's progressive as well -- and it's well covered by earnings, so it should be reliable.

McColl's looks to me to be filling the convenience store niche very well, without suffering from the trading hours restrictions of some of its larger peers. And with opening hours of 07:00-22:00 every day of the week (at my local branch at least -- some open for shorter, but still, impressive hours), it competes well with corner shops but with bigger inventory and better prices.

Earnings are predicted to rise sharply in 2018, dropping the P/E to about 2 and giving us a PEG of 0.3, so we're looking at a great dividend payer with a growth share valuation, too! Can't be bad.

Motor finance

Specialist motor lender S & U(LSE: SUS) has been doing very well, reporting a 34% revenue rise in the year ended January 2017, and a pre-tax profit gain of 29% with basic EPS up 28%.

It was the company's "17th successive year of record pre-tax profits", with chairman Anthony Coombs waxing of "Brexit, Trump and another record set of results from S&U, plus ca change..." -- I think I like him!

With the exception of a small fall the year before, that represents steady year-on-year rises in earnings, with EPS up two and a quarter fold in five years. What's more, there are two more years of big rises forecast which would put the shares on PEG valuations of 0.6 for both 2018 and 2019.

That's an impressive-looking growth share, I'd say, with a P/E that would drop to under nine in 2019 on today's price of 2,100p.

But wait, I'm suggesting S & U as a top dividend share! The thing it, it looks like that too, and we've seen a strongly progressive dividend grow from 46p per share in 2013, as far as 91p in the year just ended, for a 4.4% yield. Forecasts would see the annual payment being boosted to 104p in the current year and then on to 115p, for yields of 5.1% and 5.6%.

These dividends are around twice covered by earnings, so they're looking safe to me. And the big annual rises are easily wiping the floor with inflation.

How long can these levels of growth and dividend rises continue? Well, there's sure to be more competition coming along, and growth must eventually slow, but I see a good few years yet before that happens -- in the words of Mr Coombs, "Notwithstanding best efforts of the nation's economic forecasters, the used car market in the UK [...] remains strong".

I reckon this is another great dividend and growth combination.

Growth with dividends

In the tough decision of whether to go for growth or dividends, what better than shares like these two that can provide both? And if you want to learn about another candidate, check out our Top Growth Share From The Motley Fool report.

The past five years have brought in double-digit annual earnings growth, and the City's experts are predicting two more years of solid rises on top of that. And there's a progressive dividend policy to add to the mix.

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Alan Oscroft 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.