2 small-cap dividend stocks that could make you brilliantly rich

Drilling firm and software company could deliver big returns

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Investing in companies which deliver strong dividend growth can be a smart way to beat the market. You get to enjoy a rising income, which will often also push up the share price.

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Today I'm looking at two small-cap dividend stocks which I believe could be profitable buys after recent news.

Rock star

Rock-drilling specialist Mincon Group (LSE: MCON) provides the specialist equipment needed for companies to drill deep holes in the ground. Typical customers include miners, oil and gas firms and water companies.

This 40-year-old company has emerged from the downturn with net cash of EUR32m, and is poised for growth.

According to figures published today, Mincon's sales rose by 29% to EUR47m during the first half of the year. Pre-tax profit rose by 26% to EUR6.3m, while earnings for the six-month period rose 26% to 2.4 cents per share. This provides a healthy level of cover for the interim dividend of 1 cent per share.

This payout is in line with last year's interim dividend. If the final dividend is also unchanged, it will give the stock a yield of 2%. However, I think there's scope for the payout to grow.

Mining companies have transformed their financial performance over the last 18 months, but investment in new projects has remained limited. If commodity prices maintain their current strength, I'd expect to see an upturn in spending on exploration and growth projects.

This could create booming market conditions for Mincon, enabling the firm to increase its profit margins, and boost dividends.

The stock has risen by 11% following today's news. With a forecast P/E of 21, it isn't obviously cheap. But I think this business could beat expectations over the next few years. In my view, Mincon remain a buy.

1,900% dividend growth

Would be you be interested in a company whose dividend has risen by 1,900% since 2007? The company in question is software group Idox (LSE: IDOX), which provides "specialist information management solutions" to public sector and regulated businesses.

The firm's spectacular dividend growth has been accompanied by a 500% increase in the value of the group's shares. Idox has been a super growth story. But what does it offer new investors today?

The firm said this morning that it will spend £5m to acquire a company called Halarose, which will extend Idox's existing election software business. This valuation equates to a multiple of 4.5 times Halarose's earnings before interest, tax, depreciation and amortisation (EBITDA) which seems reasonable to me.

Idox shares have performed poorly this year, falling 5% since January. The main reason for this seems to be a disappointing set of interim results in June, when first-half profits fell by 30%.

However, much of this decline was due to acquisition-related items. Second-half performance should be better, and the board has maintained its full-year guidance. It's worth noting that this business benefits from a lot of 'sticky' recurring revenues, so profits should generally be quite stable.

According to the latest broker forecasts, Idox is expected to generate adjusted earnings pf 4.22p per share this year, giving a forecast P/E of 14.6. The dividend is expected to rise by 5% in 2017 and by 13% in 2018, giving a forecast yield of 1.7%, rising to 2%.

At current levels, Idox looks potentially interesting to me.

This could be today's top small-cap buy

Idox and Mincon may deliver big gains. But our top analysts have identified a small-cap stock which they believe could be worth up to 66% more.

The company concerned is a home-grown business with a good record of growth. Shares in this firm look decidedly cheap to me. I think they deserve a closer look.

If you'd like full details of this potential buy, download 1 Top Small-Cap Stock From The Motley Fool. This new report is free and without obligation. To get your copy today, click here now.

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.

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