Two small-cap stars offering growth and dividends

Updated: 
Defence

Most investors don't associate small-cap growth stocks with dividend payments. However, with a little bit of research, it's possible to find companies that offer both growth potential and a steady stream of dividends. Here's a look at two such companies I've discovered.

Concurrent Technologies

£56m market cap Concurrent Technologies(LSE: CNC) designs electronic products for use in rugged environments. The company's processor boards and software products are used by customers in the defence, security, aerospace, telecommunications and medical industries.

The firm has enjoyed strong growth in the last three years, with sales increasing from £11.9m to £16.4m, and earnings per share rising from 1.02p to 3.9p. Shareholders have been rewarded with an increased dividend each year, with last year's payout of 2.1p equating to a dividend yield of 2.9% at the current share price.

Can this momentum continue? Let's take a look at this morning's half-year results for a clue.

For the six months to the end of June, Concurrent generated revenue of £7.8m, down from £9m last year. Profit before tax slipped to £1.4m from £1.5m, and earnings per share also declined, falling to 1.84p from 2.12p last year. While these numbers don't make for great reading, the company did sound relatively upbeat in regard to future prospects. The group invested £1.2m in research and development during the period and it believes this investment will help "safeguard" revenues in future years. Chairman Michael Collins stated: "After a solid performance in the first-half of the year we have started the second-half with an expanding list of customers, many new opportunities and a strong balance sheet. The outlook for the future remains positive."

The company raised its interim dividend by a generous 12.5%, which signals confidence from management, and a cash balance of £7.9m also gives the firm plenty of firepower going forward. With that in mind, while the market doesn't like today's numbers, I wouldn't write off future growth prospects here just yet.

XLMedia

One small-cap dividend stock with a little more current momentum is online performance marketing company XLMedia(LSE: XLM). Indeed, interim results revealed a 33% surge in revenue to $67.9m, as well as a 23% increase in profit before tax.

The company, which uses proprietary tools and methodologies to drive traffic to its customers' websites, has been an excellent performer for investors over the last two years, with its share price doubling in this time. The group also paid a well-covered dividend of 7.8 cents last year, a yield of 3.9% at the current exchange rate.

The stock trades on a forward P/E ratio of just 14, which appears to be a steal for a company that is forecast to generate revenue growth of 35% this year. However the low P/E is probably explained by the fact that XLMedia is an Israel-based company, and therefore investors are a little cautious of the stock in light of the performances of other similar international businesses (Globo, Telit Communications etc). As a result, XLMedia is perhaps best suited to more risk-tolerant investors.

Small-cap stocks could help you escape the 9-5 grind sooner 

The Motley Fool recently published a brand new exclusive early retirement report calledThe Foolish Guide to Financial Independence. If retiring early is a goal of yours, I'd highly recommend reading the report.

It's FREE, comes with no obligation and can be downloaded within seconds simply by clicking here.  

Edward Sheldon 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.