These small-cap, big-dividend stocks still look great value

The Motley Fool

Since I first became bullish on the stock back in November 2016, laser-guided equipment manufacturer Somero Enterprises(LSE: SOM) has done very well, up 70% in value at yesterday’s close.

When something rises this much this quickly, it’s easy to assume that it’s now become too expensive and/or that dividends would be fairly meagre. With Somero, this simply isn’t the case.

Before this morning, you could pick up the shares for a decent 13 times forecast earnings. These very same shares were also predicted to yield a little more than 4.8%. While today’s “in line with expectations” interim results for the six month to the end of June — and the market’s overwhelmingly positive reaction to them — mean the stock is now more expensive, I think Somero looks a great buy for most small-cap enthusiasts.

The US and Europe continue to prove fruitful for the company with sales growth of 7% and 24% respectively contributing to a 6% rise in revenue (to $45m) compared to over the same period in 2017. While these territories represent 83% of total revenues, it’s encouraging to learn that Somero saw “balanced growth” across its footprint and product categories. Pre-tax profit increased by 13% to $13.6m.

In addition to reflecting on how new products were expected to support Somero’s long-term growth ambitions, CEO Jack Cooney stated that current market conditions and momentum in its business should translate to “another successful year of growth” for the company.

And those dividends? Today, the company saw fit to double – yes, double – its interim payout to $0.055 per share. While its connection to the construction industry means that the share price certainly isn’t immune to political and economic shocks, this kind of confidence on the part of management is hard to ignore.

Growing profits, solid finances (net cash increased 13% to £20.7m by the end of the reporting period) and a fast-rising dividend — I remain a fan.

Back in the air

Another stock that still looks good value right now is global aviation services firm Air Partner(LSE: AIR). That’s despite the 52% rise in the stock since April following the resolution of an accountancy issue that managed to pretty much halve the company’s market capitalisation earlier in the year.

Based purely on trading, things seem to be going just fine. Last month’s pre-close update reflected on what had been an “encouraging” first half of the financial year with underlying pre-tax profit for the six months to the end of July in line with that expected by management.

Having enjoyed “a record year” in 2017/18, Air Partner’s US charter business continues to perform well. Although not quite so buoyant, trading in the UK has also picked up as a result of “increased activity” during the FIFA World Cup.

In other news, the £59m cap company’s Consulting and Training division secured “some excellent long-term contracts” in H1 and has an “encouraging pipeline” for the rest of the year.

Air Partner will officially reveal its interim results on 27 September. While operating in a predictably unpredictable industry makes the importance of buying the stock at a good price more important than ever, a P/E of 13 times forecast earnings still doesn’t feel excessive, especially considering the juicy 5% yield on offer. Reinvesting the latter and benefiting from the beauty that is compound interest could generate a very nice return over the long term.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Somero Enterprises, Inc. 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.