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3 Small-Cap Consumer Stocks with the Highest Dividend Yields

Recently, the Singapore Exchange released a report highlighting the best-performing small-cap consumer stocks. These companies have a market capitalisation of between S$100 million and slightly above S$2 billion.

Year-to-date, the top five performers among the 50 small-cap consumer stocks were Japfa Ltd (SGX: UD2), BreadTalk Group Limited (SGX: CTN), JB Foods Ltd (SGX: BEW), Sheng Siong Group Ltd (SGX: OV8), and Cortina Holdings Limited (SGX: C41). Their total returns (includes capital gains and dividends) were 33.7%, 31.4%, 27.8%, 19.9% and 18.6%, respectively.

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What also caught my eye was that the top 10 best-performing small-cap consumer stocks have an average dividend yield of 3.6%. The yield is better than the stock market’s in general. With that, let’s look at the top three stocks that have a higher-than-average dividend yield (all data as of 20 July 2018).

Clinching the top spot is Overseas Education Ltd (SGX: RQ1), with a dividend yield of 7.6%. Overseas Education is the holding company of Overseas Family School Limited, which operates Overseas Family School (OFS). OFS is a leading private foreign system school here.

For the first quarter ended 31 March 2018, Overseas Education saw its total revenue dip 4.4% year-on-year to S$21.2 million on the back of “lower student enrolments compared to the same period last year”. However, its net profit grew 25% to S$1.9 million, mainly due to a 9.2% decrease in operating expenses.

On a longer term, the firm’s total revenue had fallen from S$103.1 million for the financial year ended 31 December 2013 (FY2013) to S$86.6 million in FY2017. Its bottom line had also taken a hit, tumbling from S$22.6 million in FY2013 to S$6 million in FY2017.

The following shows the revenue and net profit trend from FY2013 to FY2017:Source: Overseas Education Ltd 2017 annual report

Challenger Technologies Limited (SGX: 573), an operator of IT retail stores and an online IT marketplace, comes in second. Challenger has a dividend yield of 6.9%, and its dividend is sustainable, in my opinion.

From 2013 to 2017 (the company has a 31 December year-end), Challenger’s revenue and net profit had declined by 4.4% and 1.5% on an annualised basis, respectively.

However, on a closer look, its 2017 net profit had improved by 32% year-on-year to S$16.2 million. Together with the higher bottom line, Challenger’s net profit margin had also gone up from 3.6% in 2016 to 5% in 2017. In its 2017 earnings release, the company’s chief executive, Loo Leong Thye, explained the reasons behind the better profitability:

“We used 2017 to spring-clean our operations, close non-performing outlets, as well as review and manage our costs of operations. These have yielded a positive outcome, driving higher profit in 2017.”

Investors would be hoping that the momentum continues and that the company’s earnings go back to the heyday.

Last but not the least, taking the final spot is Tan Chong International Ltd (SGX: T15), with a dividend yield of 4%. Tan Chong is involved in the distribution of motor vehicles, heavy commercial vehicle and industrial equipment. It is also engaged in property rental.

For the full year ended 31 December 2017, revenue dipped 5.3% to HK$15.9 billion mainly due to a decline in sales volume for its motor vehicle distribution and retail division. However, net profit more than doubled from HK$191.1 million to HK$501.9 million, largely on the back of higher gross profit and share of profits from associates.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Singapore Exchange and Sheng Siong Group Ltd. Motley Fool Singapore contributor Sudhan P owns shares in Singapore Exchange.