Three smaller British businesses with substantial dividend yields

Laura Foll, a manager of UK equity income portfolios at Janus Henderson, selected three smaller British firms

Investors in the UK who are seeking income frequently focus on FTSE 100 companies. However, mid-sized and smaller businesses can also offer appealing dividend yields; it's not just the more cautious, well-established giants. These smaller companies typically grow more quickly and are more cyclical, which contributes to the growth of earnings and dividends, which over time can increase overall returns. There, "Time" is the key word to emphasize. There are moments when you have to wait for them to reach their exciting potential for capital growth. However, you know you're getting paid to wait if you've focused on reputable, well-run businesses that pay dividends. There may be challenging times in this segment of the market, but those times may present chances to purchase at favorable prices and increase dividend benefits.

It's currently in one of those challenging times. Compared to their large-cap counterparts, smaller businesses have significantly underperformed. This, in my opinion, is because smaller businesses are more exposed domestically during a period when the UK economy is essentially stagnating. Additionally, they are more cyclical during a period of uncertainty surrounding the UK and global economies. However, there may be some intriguing value opportunities as a result of this sustained underperformance. These three holdings from our multi-cap, income-focused Lowland Investment Company, in our opinion, show the potential advantages for long-term investors who are prepared to search both larger and smaller companies for potential capital growth and dividend yield.

Consider these three smaller UK businesses.

Paving stones and roofing materials are manufactured by Marshalls (LSE: MSLH). It is trading on earnings that are less than ten times the forecast, which is a low figure when compared to its past. End markets are difficult, especially for landscaping products, but there is a dividend yield that is over 5% and about twice as much as earnings while you wait for things to improve. Additionally, the group has more robust divisions. For instance, sales at its solar panels division have increased significantly in recent years.

BFIA's current problems. A large portion of London's West End, including Covent Garden, Carnaby Street, and Chinatown, is owned by Shaftesbury Capital (LSE: SHC), which also owns a variety of commercial, residential, and retail properties. The discount to net asset value is approximately 40%. Although the real estate market is depressing, this portfolio has extremely low vacancy rates. The managers are aiming for rental growth of five to seven percent annually, and the dividend yield is greater than three percent. In order to counteract inflation, the company should be able to grow that dividend in a sustainable manner.

Hilton Food Group (LSE: HFG) is a meat packer with clients all over the world, including Woolworths in Australia and Tesco in the UK. After growing into nearby markets like vegetarian cuisine and white fish, it has had difficulties in recent years. However, the current CEO appears to be returning attention to its core competencies. The shares have a price-earnings ratio in the low teens and a dividend yield that is more than 6% of earnings. Hilton is currently investing in fresh chances for expansion. It is beginning to collaborate with Walmart in Canada, a project that may eventually expand to other nations where the grocery chain operates. People may become more enthusiastic about opportunities for growth if they can feel certain that the issues have been resolved.