It is difficult to find companies that are growing fast and that already pay a dividend in the small cap universe. I screened for and found three companies that could prove to be great bargains and that have these qualities.
How to find these stocks
The screen had the following criteria:
Component of the NYSE, NASDAQ, or AMEX
Market cap qualifying them as a small cap
Earnings per share growth over the past five years of 20% or greater per annum
Sales growth estimated for this fiscal year of 10% or greater
Companies that pay a dividend
Finding these stocks provides us with an opportunity to find companies that are growing fast. This may enable us to find stocks that will raise their dividends in the future, as well as potentially increase in price.
The candidates this screen produced include SCBT Financial Corporation (NASDAQ:SCBT), Barrett Business Services, Inc. (NASDAQ:BBSI), and United Financial Bancorp, Inc. (NASDAQ:UBNK). The following is a chart of the companies’ share price performance over the past year.
As the chart shows, the companies have performed well over the past year with Barrett Business Services leading the way with a whopping gain.
SCBT Financial – What you need to know
SCBT Financial Corporation (NASDAQ:SCBT) is trading near its 52-week highs. It has a dividend yield of 1.4%. The company expects full year earnings of $3.16 per share for its fiscal year ending in December 2013, up from $2.03 per share for fiscal 2012. For 2014, analysts expect full year earnings of $3.99 per share. With this growth, it is no surprise that the stock is trading near its 52-week high.
Its earnings in the last three quarters have fallen short of estimates, and earnings going forward were expected to be higher 90 days ago than they are now. Analysts are still expecting 12% annual growth per year on average over the next five years.
In looking at the company’s most recent 10-Q, it is noted that it manages about $5.1 billion in assets through its banking services as of March 31, 2013. In order for the company to continue growing, a successful integration of the recently acquired First Financial Holdings is key.
Managing interest rate fluctuations and diversifying risk with its loan portfolio are also factors of interest. In the most recent quarter (ending March 31, 2013), the provision for loan losses decreased $1.7 million compared to the same quarter a year ago. Net interest income increased in this period due to improved interest income on its acquired loan portfolio. Non-acquired non-performing assets also decreased in this period from about $81 million before to $76 million currently. A continuation of these positive factors can facilitate future growth if it can be achieved.
Barrett Business Services – Getting it done
The company is trading near its 52 week high of $62.82 per share. In the last four quarters, the company has beaten analyst estimates each time. Because of this, in addition to all analyst estimates for earnings per share in the coming quarters and for next fiscal year being upgraded over the past 90 days, it is not hard to see why the share price has been soaring.
The company has grown 57.27% per year over the past five years on average, and is expected to grow 35% per year over the next five years. The current dividend yield of the company is 0.8%, and is weighed down due to the massive surge in share price over the past year.
Barrett Business Services, Inc. (NASDAQ:BBSI) is a leading provider of business management solutions. To look into the company’s financial details, I looked at the most recent 10-Q filed for the quarter ending in March 2013. The company has two major segments: professional employer services and staffing. Nearly 75% of its revenue comes from professional employer service fees, and this segment grew in the quarter compared to last year by a whopping 38.35%.
Direct payroll costs, its largest expense, grew only 35.92%. This shows that the company is growing while still maintaining positive margins during this growth. Gross margin grew 26.75% in this time period. This growth was achieved by gaining new customers and having a strong retention rate. Going forward, if the company can continue this momentum, it could become a growth story for years to come.
United Financial Bancorp – Key information
United Financial Bancorp, Inc. (NASDAQ:UBNK) has traded relatively flat over the past year. It currently trades close to its 52-week high of $16.32 per share. It has a dividend yield of 2.8%.
The company has trumped analyst forecasts for earnings per share in three of the last four quarters. The company has grown 22% per year on average over the past five years. The growth forecast for the next five years is 15% per year on average.
For the quarter ending in March 2013, the company’s 10-Q provided some great information. Total assets grew about 1% in the period due to growing net loans and deposits. The largest growth in loans came from construction loans, as those increased by over 20% from last year. A continued improvement in the residential and commercial real estate market could further fuel this growth.
With the growth in interest income in March 2013 of $7.4 million, the company had a much stronger quarter in earnings per share compared to March 2012. Interest and dividends in commercial real estate grew an astounding 68.4%. Going forward, continued growth in this pocket is the key to continued strong performance. Otherwise, finding a different sector that can produce this kind of growth could be another great source of income. Successfully managing its portfolio of loans and finding new opportunities are challenges the company must face.
Conclusion
I would look to purchase a balanced portfolio of all three of these stocks here, in a modest investment. While the stronger performance of SCBT Financial Corporation (NASDAQ:SCBT) and Barrett over the past year tempts me to only like those two, I know that past results are not necessarily indicative of future returns.
The fundamentals of these companies are sound, and they are all experiencing solid to astounding growth in their respective industries. This growth can be seen in specific niche areas that they operate in.
The fact that all three of these stocks pay a dividend, in addition to the fact that they are small cap stocks, intrigues me. I think they are worth a modest investment here as these look to be the type of companies that could continue to grow over the long-term.
The article Fast Growing, Dividend Paying Small Caps originally appeared on Fool.com and is written by Anthony Parsons.
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