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We often talk about how the best UK dividend shares are highly-established FTSE 100 blue-chips.
This is true to an extent — but it doesn’t mean there aren’t any decent income opportunities elsewhere.
At the end of the day, the best dividend-paying companies all share similar traits, whether they’re household names or not. Those traits are:
- A long history of payments (20+ years).
- Sufficient cash coverage.
- A healthy balance sheet (manageable debt).
While researching motor finance news this week, an unknown small-cap stock caught my eye: S&U (LSE:SUS). I was particularly impressed by its dividend credentials considering its relatively small £237m valuation. But it’s not a new company — it was listed on the London Stock Exchange (LSE) in the early 1990’s but was founded way back in 1938.
So I decided to take a closer look.
What it does
S&U is a UK-listed specialist finance company operating in two distinct niches: non‑prime motor finance and short‑term property bridging loans. Through subsidiaries it offers hire‑purchase (HP) loans up to around £15,000 and has served 275,000+ customers in its time.
At around £19 a share, it’s not a particularly ‘cheap’ stock but its valuation suggests good value. With a price-to-earnings (P/E) ratio of just 10, it’s well below the FTSE average.
But as mentioned, the real attraction is the dividend profile. With a yield near 6%, it’s on the high end of the scale when it comes to income potential. Moreso, it’s well-covered with a 58.9% payout ratio and has reportedly been paying dividends without pause for 37 years.
That kind of track record is typically reserved for the most popular UK income shares — not an under-the-radar small-cap. So what’s the catch?
Risks to watch
S&U isn’t like many other small-caps. It’s been around for ages, has a trustworthy track record, and has proven resilience. Those facts alone make it a stock worth considering for income. But like any company, it isn’t risk-free.
I’ve identified four key areas where S&U could face difficulties:
- Credit quality in non‑prime motor: rising cost of living, higher rates, or used‑car price falls can push arrears and impairments up quickly.
- Bridging exit risk: if property values soften or refinancing markets tighten, short‑term loans can extend or default, hitting provisions.
- Funding & liquidity: as a small lender, access to wholesale funding and securitisation markets matters for growth and margins.
- Regulatory environment: consumer credit conduct rules and FCA scrutiny on affordability and collections can impact pricing and growth.
Turnaround potential
One key factor that could tip the scales in S&U’s favour is a recovery in the motor finance sector. Recent results (FY2026) indicate how credit performance and earnings are improving after the 2025 motor-finance scandal.
Profit before tax increased 32% to £31.8m while impairment charges halved to £13m. More customers are paying on time and new motor deals increased from 12,703 to 18,279.
That helps quell many of the risk fears, making S&U look like an attractive small-cap income play. For investors looking for new high-yielders to bolster their income portfolio, it deserves consideration as a small allocation.
However, if you’d prefer a more stable FTSE 100 high-yielder, you might find this next opportunity more appealing…
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Mark Hartley does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
