Here’s one thing that could make this big-dividend super stock burst into life

Why the forward growth prospects of this company’s system look exciting to me.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

A glance at the six-year share-price chart for PayPoint (LSE: PAY) reveals that the stock has travelled broadly sideways over the period. But I think something has happened in the business recently that could reinvigorate growth going forward. Read on and I’ll explain.

The consumer payment and other services provider has been doing a good job of churning out chunky dividends to its shareholders. With the share price close to 1,046p, the combination of ordinary and special dividends yields just below a whopping 8%. And the forward-looking price-to-earnings multiple a little under 17 for the trading year to March 2020 suggests to me that the valuation remains anchored to the reality of the firm’s immediate prospects.

One big thing that could reignite growth

Meanwhile, PayPoint enjoys its super-stock label, according to one popular share research website, because of strong showings against valuation, quality and momentum indicators. Indeed, the operating margin is running close to 25% and the shares are up around 30% since the beginning of the year.

Today’s full-year figures are unremarkable. Revenue came in broadly flat and diluted earnings per share rose 3.3%. The directors pushed up the ordinary dividend by 1.9% and confirmed a repeat of last year’s special dividend, which is almost 80% of the value of the ordinary dividend and paid out on top.

However, one big thing that I believe could reignite growth in the business is that a new chief executive took over on 1 April. Patrick Headon succeeds Dominic Taylor who had been in control for more than 21 years and who led the company from start-up to where it is now. But I think a change at the top in a firm can bring in fresh eyes, renewed enthusiasm and a youthful determination to succeed, which could help power an upsurge in earnings growth.

Big plans for the future

A lot of today’s report is dedicated to the firm’s strategic plans. The company already has a vast network of users in the convenience retail sector and its low-cost offering is scalable.  The directors believe there is “a significant opportunity” for further growth from the retail services offering and they think it can be achieved via its PayPoint One, parcel, and card payments products and services.

I think the PayPoint One platform is interesting. The product combines an Electronic Point of Sale (EPoS) machine with integrated bill payment, card and parcel services, and seems like a neat solution for many smaller retail outfits. In fact, the machine is live in around 13,248 sites and rising, which means more than 74% of PayPoint’s independent retailers are now using the platform. That strikes me as a massive take-up of the system suggesting it ticks a lot of boxes for the firm’s customers. The forward growth prospects of the system look exciting to me.

I reckon growth is on the way. In the meantime, the company is “committed” to its special dividend programme worth £25m per year, which is due to continue until December 2021. I think the shares are attractive.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any share mentioned. The Motley Fool UK owns shares of PayPoint. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

A 9.6% yield but down 14%! Should I consider this FTSE gem for my dividend portfolio?

There are several things to consider when looking for FTSE shares with dividend potential. Here, our writer outlines his evaluation…

Read more »

Young Asian man shopping in a supermarket
Investing Articles

I’d shun Lloyds Banking Group and consider this stock for passive income instead

This company's dividend record knocks spots off Lloyds Banking Group's, and it looks like decent value now with a yield…

Read more »

Investing Articles

Will the 5.6% BT Group dividend yield grow in 2024?

Zaven Boyrazian explores whether BT Group can continue hiking its dividend and if the telecoms giant belongs in his income…

Read more »

Investing Articles

FTSE 100’s near a 52-week high, but this stock’s still dirt cheap!

The FTSE 100's on the rise, but not all stocks have been so fortunate. Here’s one company that got left…

Read more »

Investing Articles

Is this ‘secret weapon’ a multi-billion pound reason to buy Lloyds shares?

Dr James Fox explains how Lloyds shares could rise even higher as the bank's 'strategic hedge' is likely to boost…

Read more »

Smiling senior white man talking through telephone while using laptop at desk.
Investing Articles

3 of the best penny stocks for growth, dividends, and value!

Looking for top penny stocks to buy? Royston Wild believes these UK small-cap shares could prove lucrative investments in the…

Read more »

Investing Articles

How I’d aim to turn an empty ISA into £275k by purchasing cheap shares this summer

Harvey Jones is taking advantage of the summer stock market lull to buy cheap shares and build a high and…

Read more »

Investing Articles

What’s the minimum I need to invest every month to earn a meaningful passive income?

When looking to secure a stream of passive income it's important to be realistic. Our writer investigates a strategy to…

Read more »