MIND C.T.I.: Small cap, High-Yield Israeli Tech Stock Primed For Growth

| About: MIND C.T.I., (MNDO)

The rationale for investing in Israeli tech stocks is simple: It is the most innovative high-tech nation in the world. Last week, I noted the reasons why Israel stands above all other nations when it comes to the high-tech industry. Now, as promised, I want to give you the name of one of my favorite emerging stocks in the high-tech world of "The New Silicon Valley."

As I mentioned several times over the past month, every portfolio should include dividend-paying stocks as part of a diversification strategy. So when I came across a microcap Israeli tech stock with a high-yield dividend of 9.7 percent, I was compelled to dig further into the company.

Most investors associate dividend paying stocks with blue-chip value companies with moderate growth and high-cash flow. But small cap stocks with large dividends also have the ability to deliver high-yield income. The benefit of buying small cap stocks with high dividend payouts is the added exposure to capital gains in addition to consistent income. MIND C.T.I. Ltd. (NASDAQ:MNDO) fits this category like a glove.

With over 10 years in the technology sector, MIND has quickly evolved into a leading global provider of real-time, product-based mediation, billing and customer care solutions for voice, data, video and content services.

Last month, when Japan's earthquake rattled global markets, the S&P 500 fell about 3 percent. The Nasdaq dropped 5 percent. MNDO fell just 7 percent during the same period, but while the broad indices were roughly flat for the month of March, MNDO jumped more than 9 percent. That's pretty good resilience for a tiny company.

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With a market cap of $61.8 million, little MNDO doesn’t show up on many traders’ radar screens -- especially because it’s thinly traded, averaging just over 136,700 shares traded daily. That makes it exactly the type of small cap stock that we should keep an eye on and think about buying when the opportunity arises. We want to get into these types of companies before they receive significant analyst coverage.

In MNDO’s case, there are other strengths besides just a lack of coverage. The company’s income statement looks particularly strong. Total revenues for 2010 were close to $20 million, an increase of 14 percent year over year. Growth in revenues helped to increase operating income from $2.2 million in 2009 to $4.8 million, or 25 percent of revenues, in 2010. Net income was $44.9 million or $0.26 per share.

The balance sheet also looks strong with a total cash position of $20.5 million at the end of 2010. The company boasts profit margins of 24.4 percent and return on equity of 20.8 percent. Moreover, MNDO continues to grow its customer base at a rapid pace.

Last week MNDO took a major step towards catching institutional attention with the announcement that it's joined forces with Israel’s first mobile operator, Pelephone Communications. Pelephone has over 2.8 million subscribers.

For the investor who wants the potential for outsized capital gains in small cap stocks that pay big dividends, MNDO is worth further research.

As always, complete your own due-diligence to make certain that a stock is right for your portfolio.

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