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Not many UK income stocks have grown their dividend per share every year for half a century.
But some have – and one member of that elite group is James Halstead (LSE: JHD), a long-established manufacturer and distributor of floor coverings.
Not only is the company a longstanding dividend grower, it also now offers a yield of 7.1%. I reckon it is an attractive option for an income-focused investor to consider right now. Here’s why.
A proven business in a cyclical industry
One reason the income stock’s dividend yield has been growing is those steady-as-clockwork rises (though of course past performance is not necessarily a guarantee of what to expect in future – no dividend is ever guaranteed to last).
But another is James Halstead’s dismal share price performance. The past year has seen the share price fall 6%. Over five years, the share price has tumbled 55%. That fall means investors who buy today are yielding more than double what investors who bought five years ago are yielding.
While that is an attractive way of looking at things, it also raises the question: why has the share price lost so much ground?
In short, given its focus on commercial flooring, the firm is at the mercy of a market in which customer demand is somewhat cyclical. Leaner economic times can eat into demand. Indeed this year saw UK rival Headlam enter liquidation, underlining the challenges in this market at the moment.
So too can region-specific problems given the company’s global footprint – one risk I see is instability in the Middle East continuing to hurt demand in that market, which has historically been a lucrative one for James Halstead. Nonetheless, the company still managed to grow sales there by no less than 45% last year.
With its long history, established customer base and proven business model, I see a lot to like about James Halstead.
Out of favour, but might the tide turn?
Admittedly, last year saw revenues fall slightly. Profit after tax also slid, from £41m the prior year to £35m.
But the business is still solidly profitable. It is sitting on a cash pile that last year grew to £76m. That gives it some flexibility in a tough market and also helps reassure me, along with strong ongoing cash generation, that this income stock can continue its stellar stretch of dividend growth.
Longer term though, is the share price a concern? Could it keep heading south? Of course, any share price can move down, even if it has already fallen a long way.
However, I have added James Halstead to my portfolio because I think its current share price potentially offers good value from a long-term perspective, on top of the attractive dividend yield.
The market capitalisation of £527m does not look high to me given the quality nature of the business, its proven profitmaking potential and the cash pile.
For the patient investor, I see this UK income stock as well worth a look.
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Christopher Ruane owns shares in James Halstead.
