The Motley Fool

Looking for Income? This Underfollowed Small Cap Is a Dividend Star

Dividend-growth investors tend to look at the larger, more stable dividend-growth companies. There are, however, some intriguing small caps that have proven to be very effective income distributors.

One such company is Sylogist (TSXV:SYZ). This little-known small cap is a technology innovation company that provides intellectual property solutions to a range of public and private sector customers. It is better defined as a software company that provides a range of enterprise resource planning solutions, including fund accounting, grant management, and payroll systems.

Some of its major customer groups include local governments, national governing organizations, and education boards. Sylogist has over 1,000 customers worldwide, the bulk of with are in North America and the U.K.

Impressive growth

Year to date, Sylogist has been a top performer. Its share price has risen approximately 26%, far outpacing the broader market. Over the past five years, the company’s stock price has averaged a 17% return.

The company is what one would call a high-growth stock. Sylogist has grown revenues by a compound annual growth rate (CAGR) of 35% over the past five years. Earnings per share (EPS) have been significantly more volatile, but it’s important to note that EPS are impacted by one-time items.

Given that Sylogist has a growth-through-acquisition mentality, EPS is often impacted by acquisition costs. Despite the volatility, EPS have grown by a CAGR of 26% since 2012. What happens if the company can’t find any attractive companies to acquire? This brings me to the company’s capital-allocation policy.

Capital allocation

Sylogist is a Canadian Dividend Aristocrat, having raised dividends for seven consecutive years. Over the course of this time frame, the company has averaged a dividend-growth rate of approximately 16%. As a result, shareholders would have seen their dividends double in fewer than five years.

That is just the regular quarterly dividend. Since 2015, the company has also issued a special dividend on four separate occasions. In total, the company distributed an additional $0.27 per share in special dividends. This is equal to almost a year’s worth of monthly dividends at today’s quarterly payout of $0.08 per share.

Over the past three years, the company has announced its special dividend in late fall. Given its record results thus far in 2018, another special dividend may be in the cards.

Sylogist is extremely shareholder friendly. If it can’t find something to invest in, it will either buy back shares or issue special dividends to shareholders. This little-known tech star is an attractive investment for income-seeking investors.

Our #1 Stock to Buy in 2018 (and Beyond!)

When you buy heavily cyclical stocks at low prices… and then hold the shares until the cycle reaches its peak… you can make a very healthy profit.

Every investor knows that. But many struggle to identify the best opportunities.

Except The Motley Fool may have a plan to solve that problem! Our in-house analyst team has poured thousands of hours into their proprietary research – and this is the result.

Our top advisor Iain Butler has just identified his #1 stock to buy in 2018 (and beyond).

The last time this stock went from the low point of its cycle to the peak… shares shot from $12 to $40 inside of 4 years. That’s an 300%-plus return. And if you missed out on that ride, today might just be your second chance.

Click here to claim Iain’s new report, absolutely FREE!

Fool contributor Mat Litalien has no position in any of the companies listed. Sylogist is a recommendation of Dividend Investor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.