Investors may consider gaining exposure to dividend-paying, small-cap stocks to benefit from a regular income stream and long-term capital gains. Generally, small-cap companies are volatile as they don’t enjoy a major competitive moat and may be significantly impacted by macro-economic factors such as interest rate hikes or inflation. Alternatively, they are positioned to grow at a faster pace and beat the broader markets by a wide margin over time.
Here is one such small-cap stock you can buy to benefit from a tasty dividend yield in 2024 and beyond.
An overview of Decisive Dividend stock
Valued at $135 million by market cap, Decisive Dividend (TSXV:DE) pays shareholders an annual dividend of $0.54 per share, indicating a forward yield of 7.74%. In the last decade, the dividend stock has returned 535% to shareholders. However, if we adjust for dividend reinvestments, cumulative returns are much higher at 1,140%.
Despite its outsized gains, Decisive Dividend stock trades 38% below all-time highs, allowing you to buy the dip.
Decisive Dividend was established to acquire cash-flowing companies and provide a sustainable and growing dividend to shareholders. It raises capital from investors to acquire manufacturing companies with strong, predictable cash flow. These companies enjoy a sustainable competitive advantage and have an enterprise value of up to $25 million.
Between 2021 and 2023, Decisive Dividend increased its revenue from $62.5 million to $135 million. Comparatively, adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) almost tripled from $8.7 million to $25.2 million, while net income expanded from $2.3 million to $8.5 million in this period.
Decisive Dividend completed its first acquisition in 2015 and has acquired 13 companies in the last nine years. Its healthy and growing pipeline of potential acquisitions should help the company drive future cash flows and dividends higher.
Strong financials and growing cash flows
In the last nine years, Decisive Dividend has increased its sales at an annual rate of 29%. An asset-light business model has allowed it to expand adjusted EBITDA by 33% in this period. It has paid cumulative dividends amounting to more than $30 million since 2015 and its payout ratio in the last 12 months is quite sustainable at 66%.
A low payout ratio allows Decisive Dividend to reinvest in accretive acquisitions, raise dividends, and strengthen its balance sheet. The company ended 2023 with $47.3 million in cash and a net debt of $53 million. Moreover, since 2021, it has raised its monthly dividend two times, increasing the effective yield for shareholders.
Is Decisive Dividend stock undervalued?
Decisive Dividend has assembled a diversified portfolio of quality, high-gross-margin product manufacturing businesses focused on organic growth. In the last two years, it has made $3.8 million of growth capital expenditures on manufacturing equipment to increase production capacity and improve operational efficiency.
Analysts forecast adjusted for Decisive Dividend to expand from $0.26 per share in 2024 to $0.43 in 2025. So, priced at 16.2 times forward earnings, Decisive Dividend is quite cheap. Analysts tracking the dividend stock expect it to surge over 40% in the next 12 months. After accounting for its dividends, cumulative returns may be closer to 50%.
