No one knows whether this correction has bottomed out or if a rebound is around the corner. What is clear, however, is that the sell-off has thrown up an income opportunity that many investors overlook.
Amid the sharp correction, several fundamentally strong smallcap companies are trading lower even as they continue to generate cash and pay healthy dividends. While earnings can be manipulated, consistent dividends usually signal genuine cash flows and a management willing to share profits with minority shareholders.
Against that backdrop, here are five small cap dividend stocks to keep on your radar.
Swaraj Engines
First on the list is Swaraj Engines.
Swaraj Engines is involved in the supply of engines to Mahindra & Mahindra’s Swaraj division. The company manufactures diesel engines ranging from 22 HP to more than 65 HP and also produces advanced engine parts.
It has consistently paid dividends to shareholders and has steadily increased payouts. In FY25, Swaraj Engines paid ₹105 per share as dividend.
The company’s sales and net profit have grown at a compounded annual growth rate (CAGR) of 17% and 19% over the past five years. Its ROE and ROCE have averaged 37% and 50% during the same period.
The company’s prospects are closely tied to the tractor industry, which is dominated by a few key domestic players alongside some international companies.
The sector has witnessed significant developments, including an increase in farm mechanisation, driven by rising rural incomes, growing awareness among farmers, and financing schemes.
Swaraj Engines stands to benefit from these trends as well as from government support through subsidies.
Praj Industries
Next on the list is Praj Industries.
Incorporated in 1983, Praj Industries provides solutions for bioenergy, high purity water, critical process equipment, breweries, and industrial wastewater treatment. The company has a 10% market share globally excluding China.
Praj Industries has consistently paid dividends. In FY25, it paid ₹6 per share as dividend.
Over the last five years, the company has paid ₹4 per share as dividends on average. Its dividend payout ratio is above 50%.
Financially, sales and net profit have grown at a CAGR of 21% and 26%, respectively.
ROE and ROCE have averaged 17% and 24% over the same period.
Going forward, management expects improvement in the second half as customer-side liquidity normalises.
The company expects traction from new areas such as diesel blending, sustainable aviation fuel, and bioplastics, along with stronger international momentum under US IRA 45Z tax credits and projects in Latin America and Indonesia.
Cera Sanitary ware
Next is Cera Sanitary, a household name in India.
Cera is India’s largest home-grown sanitaryware brand and the second-largest in faucet ware. These two segments together contributed 88% of revenues in FY25.
The company has launched new products and rolled out distribution and marketing strategies to establish a presence from the deep value to the luxury segment.
Almost 98% of revenue comes from India, with South India contributing 35%, followed by North (33%), West (21%), and East (9%).
Cera has paid healthy dividends over the years. In FY25, it paid ₹65 per share as dividend. Its dividend per share has been rising consistently for the past five years.
Over the past five years, sales and net profit have grown at a CAGR of 10% and 18%.
ROE and ROCE have averaged 16% and 22% during the same period.
Going forward, Cera expects to outpace industry growth by 5–6%, backed by product innovation, distribution muscle, and brand strength.
VST Industries
Fourth on the list is VST Industries.
The company is engaged in the manufacture and trade of cigarettes, tobacco, and tobacco products.
It is the third-largest player in the domestic cigarette market, with a significant presence in West Bengal, Andhra Pradesh, Telangana, Bihar, and Uttar Pradesh. Its cigarette brand Total is among the top 10 brands in the industry.
VST Industries has been paying dividends since 1997. In FY25, it paid ₹30 per share.
Over five years, VST has averaged a dividend per share of ₹22 and a dividend payout of over 70%.
Financial performance over the past five years has been dismal, with revenue and profit largely stagnant. In FY25, it posted a marginal drop in both sales and profit.
Nevertheless, the company maintains strong return ratios. Over five years, ROE and ROCE have averaged 27% and 26%, respectively.
Going ahead, the company has outlined ambitious sustainability and growth objectives under its “Roadmap 2030.” It plans to incorporate 50% renewable energy into its overall energy mix by FY30.
VST is also focused on achieving plastic neutrality by offsetting all plastic packaging through post-consumer plastic waste collection and processing under Extended Producer Responsibility (EPR).
The company continues to expand its brand portfolio, concentrating on innovative product launches in both the mainstream premium and emerging segments.
TTK Prestige
Last on the list is TTK Prestige.
TTK Prestige is a well-known kitchenware brand with leadership across categories such as cookers, cookware, and gas stoves.
It holds a leadership position in the organized pressure cooker segment and has been in existence for over six decades.
TTK Prestige has a decent track record of paying dividends. Although payouts have not grown at an exceptional rate, they have remained consistent.
In FY25, it paid ₹6 per share as dividend.
Over five years, TTK has averaged ₹5 per share in dividends, while its payout ratio has averaged 76%.
Sales have grown at a CAGR of 6%, while profits have declined in the past couple of years.
Over the past five years, the company has maintained an average ROE and ROCE of 13% and 18%.
TTK is focused on innovating its product range to remain relevant to consumers. With continuous additions to the portfolio and promising potential in export markets, management expects the business to keep expanding.
The strategy is to expand capacity whenever utilization approaches 70%.
Conclusion
When it comes to smallcaps, investors should first look for a history of regular payouts. Dividends form an important part of the investing journey, providing a steady stream of income when everything else is going haywire. If those dividends are accompanied by growth, that is an added plus.
That said, smallcaps also carry big risks, including market volatility and liquidity concerns.
Investors should always conduct thorough research and check corporate governance and valuations before making any decisions.
Happy investing.
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
