Not all dividend stocks are mature giants from the FTSE 100. I often like to find little-known shares that can provide a combination of both income and growth.
I’d describe dividend stocks as those that offer an above-average dividend yield to shareholders. On average, the FTSE 100 currently offers a yield of 3.7%. But I’m looking for stocks that can give me much more.
For the strongest growth prospects, I’d consider small and mid-sized companies. Although many growth stocks offer little to no dividends, I’m looking for those that do.
Top dividend stocks
One dividend stock that I’d buy hand over fist is Somero Enterprises (LSE:SOM). This is a £250m business that manufactures equipment that levels concrete. It’s a specialist in this field and its highly accurate levelling machines are sought after.
It currently offers a dividend yield of 6% that’s forecast to grow to over 8% by the end of the year. But there’s much more to Somero than its chunky dividend.
I’d describe it as a high-quality business that oozes many impressive metrics. For instance, it operates with a return on capital employed of over 50%, and a 30%+ profit margin.
Meanwhile, trading remains strong and earnings are growing. That’s particularly the case in North America, Somero’s largest market. New and innovative products are in the pipeline, which should drive future growth too.
Bear in mind that the economic environment is uncertain and will need to be closely watched. Many countries have started to take actions to control soaring inflation such as raising interest rates. Any slowdown in construction projects as a result could have a negative impact on Somero’s sales.
That said, I’d describe it as an all-rounder and would be happy to buy it for my long-term Stocks and Shares ISA.
8% dividend yield!
The next dividend stock that I’d buy is furniture and flooring business SCS (LSE:SCS). With a market capitalisation of just £56m, it’s particularly small. But note that this small business offers a chunky 8% dividend yield.
Its share price has fallen by a whopping 44% over the past year and it now trades near lows last seen at the height of the pandemic. I’d say that’s mainly due to concerns of a wider economic slowdown.
With such a sharp tumble, I reckon its share price has factored in much of the slowdown in customer spending. In fact, it recently announced positive trading and a strong profit margin.
And with a price-to-earnings ratio of just 8 times, I reckon it could be an attractive long-term buying opportunity for me.
Bear in mind that cost of living pressures could still limit sales over the coming year. And the economic uncertainty could remain a dark cloud for SCS for several months.
That said, I’m looking at the long term. When the economy eventually starts to recover, SCS should be well-placed to thrive. Due to its massive cash pile and solid balance sheet, I have confidence that it will survive and could even double my money one day.
In the meantime, I can enjoy its juicy dividend income.
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Harshil Patel 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.