Now the big worry is a recession in the developed world and how that will impact emerging markets like India.

But despite all these challenges, the Indian retail investor has not lost hope.

One of the big reasons why retail investors kept faith in the market is the steady income they have received from dividends. Dividend stocks have provided stability to their portfolios which in turn has helped bring in more money into the market.

This has proven to investors once again why dividends are so important in a volatile market. They provide investors with a steady income and a moderate return on their investment.

They also provide an incentive for companies to increase their earnings, so they can pay an even higher dividend next year. This is why dividend paying stocks have been shown to have higher returns than non-dividend paying stocks over long periods of time.

Small-cap stocks, on the other hand, are domain of growth investors. These stocks offer the potential of fast and substantial gains. This is why most retail investors don’t pay too much attention to the dividends paid by smallcaps.

This is a mistake.

We at Equitymaster argue that it’s even more important to consider dividends of smallcaps than midcaps or largecaps.

You see, dividends are a sure sign of stability, especially rising dividends. Larger companies tend to be more stable and thus can pay a good amount of their profits as dividends.

But if a small, growing company is paying regular dividends, that’s an indicator of a potential multibagger. As long as that small company is not using lots of debt to fund its growth, you can consider the stock for your smallcap watchlist.

Of course there are many other factors to consider when you make a smallcap watchlist. But dividends are a good way to get started.

In this article we present 3 dividend paying small-cap stocks that have more than doubled in 2023.

These are not to be included immediately into any watchlist. But they’re fundamentally strong and have solid dividend payouts. We believe they’re well worth researching further if you want to build a smallcap watchlist or already have one.

# Precision Camshafts

Part of the Precision Group, Precision Camshafts is in the automotive components business. It’s among the largest camshaft manufacturers in the world.

The camshaft is a crucial part of an auto engine and are mainly used in passenger vehicles, tractors, light commercial vehicles, and locomotive engines. Precision Camshafts manufactures more than 150 types of camshafts.

The Pune-based company was incorporated in 1992 and it came out with its initial public offering in 2016. It has strong presence in over 17 countries such as Europe, UK, China, Brazil, Russia, and North America.

The past three years performance of the company was impacted due to the disruption caused by covid as well as the cyclicality of the end-user industry. However the long term growth and profitability numbers of the company are impressive.

The company also has an e-mobility subsidiary that has begun contributing to the topline. It’s in the process of setting up its first electric vehicle (EV) plant in Solapur.

The company has also made its foray into the non-camshaft segment by developing a new engine component for commercial vehicle braking systems.

Precision Camshafts’ share price has risen 137.2% in 2023.

The company has a listing history since February 2016. Since then it has paid 8 dividends. It’s average payout ratio over the last 5 years has been 16.3%.

In FY23 it paid a dividend of Re 1 per share. It’s Current Dividend Yield is 0.4%.

# Zensar Technologies

Zensar Technologies is leading technology and digital solutions company that offers a range of integrated information technology (IT) and business process outsourcing (BPO) products and services.

The company operates in two segments digital and application services and digital foundations services.

It also offers a range of IoT solutions such as business intelligence and data warehousing, remote infrastructure management, testing, software application planning, development, migration, and support.

At present, it is present in India, the USA, the UK, Europe, and Africa. The company plans to expand its geographical reach by including more offerings for existing and new verticals.

In recent years, the company’s revenue and profit have grown at steady rates of 11.3%. While not impressive to pure growth investors, the company is fundamentally strong with good return ratios (above 15%) and is debt free.

Going forward, the company’s plan is to expand to new geographies and offer its clients innovative solutions using emerging technologies.

Zensar Technologies share price has risen 136.5% in 2023.

The company has a long history of paying consistent dividends to its shareholders. Its average payout ratio over the last 5 years has been 30.3%.

In FY23 it paid a dividend of ₹5 per share. It’s current dividend yield is 1%.

# Banco Products

Banco Products is engaged in the business of manufacturing and supplying engine cooling modules for automotive and industrial use in India and overseas.

It has several big names from the industry as its clients. Some of them are Ashok Leyland, Eicher, Mahindra, Godrej, and Indian Railways.

Banco Products is fundamentally sound and is a debt-free company.

The company has plans to expand its business in Europe and US through its subsidiaries and has no major capex planned in the short term.

Banco Products’ share price has risen 124.4% in 2023.

The company has a rich history of dividend payments. It has paid dividends to its shareholders since 2004. A sustained increase in revenue and profit has helped the company to increase its dividend payout over the years.

Its average payout ratio over the last 5 years has been almost 100%.

In FY23 it paid a dividend of ₹20 per share. It’s current dividend yield is 4.4%.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com