The thinking behind this is simple. While nothing can be guaranteed in terms of performance, these people will arguably be more incentivised to achieve good returns when their own capital is at risk.

With this in mind, here are two examples from the small-cap universe where those in charge also feature prominently in the list of significant shareholders. 

In the wars…for now

I’ve had my eye on cosmetics firm Warpaint London (LSE: W7L) for a while now.

One of the first things to attract me — aside from the seriously high operating margins and fairly resilient industry of which it is a part — was the knowledge that joint CEOs Samuel Bazini and Eoin Macleod owned just over 45% of the company between them.

It would seem some have gone cold on the stock, however. Despite being initially embraced by investors following its IPO, Warpaint’s share price is now down almost 40% from the highs achieved in May last year. This feels a little harsh considering last week’s far-from-awful full-year results.

Revenue rose 15.6% to £31.2m in 2017, with sales of the company’s W7 brand climbing 17.1% in the UK and 16.8% in overseas markets.

The aforementioned adjusted operating margin fell slightly to 24.4% from 25.2% but this is still more than satisfactory. Under the bonnet, Warpaint’s finances also look solid with a net cash position of £2m at the end of the year. 

According to Chairman Clive Garston, the £150m cap has made a “promising start” to 2018 with trading being in line with (heavily-invested) management’s expectations. The acquisition of Retra Holdings back in November for £18.2m should also provide a significant boost to earnings going forward.

Indeed, estimates of 13.1p per share being achieved in 2018 leave the stock on a price-to-earnings ratio (P/E) of just 14. For a growth company, that looks very reasonable. The forecast dividend yield of 2.9% is a modest (but welcome) extra. 

Lock in for profits

Small-cap self-storage firm Lok’n Store (LSE: LOK) is another stock that’s made its way onto my watchlist, partly because CEO Andrew Jacobs owns almost 19% of the company.

I’m a big fan of companies like this since the business model is easy to understand and, although the market is competitive, our love of ‘stuff’ means demand looks like it’s only going one way.

Highlights from last week’s interim results (covering the six months to the end of January) included a 5.7% rise in revenue (to £8.82m) and 16.3% jump in group adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) to £3.85m. Adjusted pre-tax profit soared 21.3% to £2.55m. 

This could be just the start. According to Jacobs, the company is using its “robust balance sheet” to build more stores in what remains a “structurally under-supplied market“. Two were opened over the reporting period, another two added to the pipeline and four more sites are “currently with lawyers“.

At the time of writing, Lok n Store’s stock trades on a valuation of 33 times earnings, suggesting a lot of this growth is firmly priced in. Nevertheless, I’ll be keeping the firm on my radar in the hope that a better entry point appears following a wobble in the general market.

The post One big reason I’d consider buying these two small-cap growth stocks appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

In such a scenario, a company with dividend growth potential such as Shell (LSE: RDSB) could be a worthwhile purchase. However, it’s not the only dividend-growth share that could be worth a closer look.

Strong performance

Reporting on Wednesday was specialist supplier of colour cosmetics and owner of the W7 brand Warpaint (LSE: W7L). It announced that it has continued to perform as per previous expectations, with the integration of Retra having been completed. The business unit is performing well, with a new managing director and finance director having been appointed in December. With new opportunities and synergies expected to be realised from the acquisition, the company’s prospects for 2018 appear to be bright.

In the current year, the company’s bottom line is forecast to rise by 28%, with further growth of 23% expected next year. This puts it on a price-to-earnings growth (PEG) ratio of just 0.6, which suggests that it could deliver a rising share price over the same time period.

A fast-rising bottom line could also stimulate the shareholder payouts made by Warpaint. The company’s dividend is due to rise by 65% between 2017 and 2019, which puts it on a forward dividend yield for 2019 of 3.1%. With dividends due to be covered 2.4 times by profit, further income growth could be ahead over the long term.

Improving outlook

Of course, Shell remains one of the most enticing income stocks in the UK stock market. It currently has a dividend yield of 5.8%, and there is scope for rapid growth over the long run. While there has been a view in recent years that the company’s dividends are unsustainable, that looks set to change. In the 2019 financial year, the stock is expected to have a dividend coverage ratio of 1.4. This suggests that it could afford to pay out a higher proportion of profit as a dividend without hurting its financial strength.

Certainly, the performance of the oil price will have a significant impact on Shell’s profitability and on its ability to pay a higher dividend. But with the prospects for oil being more positive now than they have been in a handful of years due to rising demand and supply cuts, the company’s potential as an income stock remains high.

With free cashflow forecast to rise and debt levels on the decline, Shell appears to be a sound income option for the long run. And with inflation potentially moving higher across the world, it could be an appealing stock from an income perspective.

The post Royal Dutch Shell plc isn’t the only dividend-growth stock I’d buy today appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Peter Stephens owns shares in Shell. The Motley Fool UK has recommended Royal Dutch Shell B. 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.