It’s not often I see a growth stock make notable gains in a year while maintaining a high yield. In many cases, the choice to drive profitability comes at the cost of redirecting funds away from shareholder returns.
But in the case of Wickes Group (LSE: WIX), the DIY company seems to have achieved both simultaneously. Not only is the price up over 60%, but it’s delivered a 15% return on equity (ROE) and boasts a 4.6% dividend yield.
Those are impressive numbers by any measure! But a few metrics alone don’t tell the whole story. Before diving in, I decided to take a closer look.
Debt and dividend sustainability
While Wickes Group demonstrates genuine profitability, high debt combined with falling earnings makes me question its dividend sustainability.
Earnings growth is down 23.5% year on year, sending the dividend payout soaring above 100%. Usually that would be a major concern but in Wickes’ case, the company has impressive cash coverage. It generated £32.2m in free cash flow in 2024 and maintains a notable net cash position of £158m. Not only does that cover dividends but enabled a £25m share buyback programme, £20m of which was announced in March.
Management’s held the dividend flat at 10.9p for three consecutive years, suggesting caution rather than aggressive growth. With forecast EPS growth of 25.9% annually, the payout ratio’s expected to normalise around 61% by 2026, improving sustainability.
Growth and risks
Wickes has strengthened its market position to a near-6% share through a differentiated model combining retail, trade services and installation. Its TradePro membership programme, now exceeding 632,000 members, drives consistent double-digit growth from professional customers.
Digital improvements, including the ’15-minute Click & Collect’, have enhanced customer experience while competitor exits (Homebase, Wilko, Carpetright) have driven expansion opportunities.
But risks remain. The UK cost-of-living crisis continues impacting discretionary spending, particularly on larger installation projects. Design & Installation revenue fell 13.9% like-for-like in 2024, though Q4 showed some recovery.
National Insurance contribution increases are also putting pressure on retailers, adding around £6m to Wickes’ annual expenses. With the stock already looking overvalued (a price-to-earnings ratio of 24), it can’t afford to disappoint investors in the next earnings call.
My verdict
When screening for stocks to buy, it can be easy to get drawn in by a few impressive metrics. Wickes is a solid example of why it’s important to always dig deeper and get the bigger picture.
For UK investors, the company’s debt situation is a major red flag — particularly given the consumer discretionary exposure and the elevated payout ratio.
On the flip side, cash flow looks strong enough to cover dividend payments for the immediate future. If the company can afford to prioritise dividends over debt, then it could be a reliable source of income.
However, many other UK stocks boast a similar yield with better coverage and sufficient profitability. As such, I don’t see any compelling reason to consider Wickes at this time.
