SMTP: A Micro-Cap Stock With A Cash Dividend

| About: SharpSpring, Inc. (SHSP)

SMTP Inc. (SMTP) may not be a household name among individual investors, but its global e-mail marketing and delivery platform is well known among its 10,000 customers that include many Fortune 500 companies. The platform provides SMTP server relay services to send mail from web applications to recipients' inb-oxes with a focus on deliverability.

Unlike many micro-cap stocks, the company has been consistently profitable and, even more surprisingly, offers a cash dividend yield that was recently hiked 20% to $0.072 per share. The newly increased fourth quarter dividend is payable November 30, 2012, to shareholders on record at the close of business on November 20, 2012.

Consistently Growing And Profitable

SMTP is also unique among micro-cap stocks for its consistent growth, profitability and cash dividend to shareholders. Last quarter, the company reported revenues that jumped 35.1% to $1.35 million, gross profit that jumped 24.6% to $1 million and pre-tax net income that jumped from $384,000 to $424,000, or $0.02 per diluted share.

"We continue to experience healthy growth of both top line revenues and net income," said Richard Harrison, CEO of SMTP Inc. in a recent press release. "During the quarter, we added to our value proposition with new support programs that offer a higher level of personalized service and attention to our larger customer segment."

The company's business model involves charging companies between $2 and $450 per month to manage their e-mail marketing and deliverability. As of December 31, 2011, the firm had approximately 500 corporate customers paying $450 per month and many more small business owners paying $2 to $200 per month, generating a stable recurring revenue stream.

Effective Product in a Growing Market

Founded 12 years ago, SMTP is an independent service provider focused exclusively on the execution of e-mail delivery for applications in marketing and the enterprise requiring bulk e-mail or high volume transactional delivery. For instance, retailers can use its solution to send coupons and other e-mails to shoppers while avoiding the "spam" folder.

The proliferation of e-mail has led to the growth of spam, blacklisting, bounces, blocked IPs, firewalls and e-mail filtering. Even legitimate traffic can easily be flagged as "spam," regardless of how well the sender adheres to the rules. The company's solutions address these concerns to provide higher-yielding levels of service to business users.

The e-mail marketing industry is expected to grow at a compound annual growth rate of 10% between 2011 and 2016, hitting $2.47 billion in size by 2016, according to US Interactive Marketing. E-mail deliverability is perhaps the greatest concern or this growing industry, which has resulted in strong demand for services to improve these metrics.

Potential Investment Opportunity

Income investors looking for exposure to the micro-cap space may want to consider investing in SMTP, given the company's strong 7.2% dividend yield and predictable recurring revenue streams. Meanwhile, the growth potential of its software in a rapidly expanding industry provides a further catalyst, as the stock trades at P/E to growth ratio of well below 1.0.

But before investing, investors should also remember that SMTP is a micro-cap stock that entails greater risk than larger companies. Some of these risks include reduced liquidity (making it difficult to enter or exit positions at attractive prices) and less access to the capital markets for the company itself (perhaps impairing its business plan's funding needs and making financings more expensive).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: has a team of writers focused on the small-cap space. This article was written by Jeff Swanson, one of our financial writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.