Here’s a 6%-plus dividend yield I’d buy into instead of Barclays

After Brexit, I reckon firms such as this one have a good chance of thriving, but I’m less convinced about Barclays plc (LON: BARC)

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I reckon bank shares such as Barclays are among the most out-and-out cyclical stocks you can buy. Banks essentially skim a living from the enterprise of others. So if the general economy falters, the banks’ profits, cash flows, dividends and share prices tend to falter too.

I’d rather invest in a ‘real’ business. And one company delivering a consistent performance right now is building products manufacturer Epwin (LSE: EPWN). What’s more, the dividend yield is knocking on the door of 7% with no sign of a cut down the road. Meanwhile, the share chart shows a period of consolidation and the valuation looks low. I think the stock is worth deeper research.

Overcoming previous problems

The dividend did receive a 27% haircut in 2018, but City analysts following the firm have pencilled in increases for 2019 and 2020. Trading conditions around 2017 and 2018 were difficult when the firm lost two of its largest customers, closed its plant in Cardiff, and took an additional hit to profits because of unrecovered material cost inflation. Thankfully, things have improved since then and the company looks like it’s in recovery-mode to me.

Epwin makes PVC windows, doors, cladding, guttering, decking and prefabricated GRP building components serving the new-build and maintenance markets. You don’t need me to tell you the business is therefore cyclical in its nature. But I’m not writing off Epwin just because of that. Some cyclical firms can make jolly decent investments if you catch them right, and Epwin appears to be holding its own and trading well today.

This morning’s half-year results report reveals revenue for the first six months of the year came in broadly flat compared to the equivalent period last year. Underlying operating profit rose almost 11% and adjusted earnings per share shot up nearly 15%. I’m encouraged by those figures and so, it seems, are the directors who raised the interim dividend by almost 3%.

Nipping and tucking

The company is engaged in a consolidation and rationalisation programme aimed at reducing from seven operating units down to two on its site in Telford. The goal is to have the site developed and operational in the first half of 2020, which will “significantly” improve the logistics and finishing operations of the Window Systems business and enable the growth and development of the firm’s new aluminium window system operation, which was launched in May.

Epwin also disposed of its “non-core” glass sealed-unit manufacturing operation during the beginning of the year and acquired a decking installation business in February called PVS. My guess is such nipping and tucking will put the firm in better shape to achieve growth in the years ahead.

With the uncertainty of Brexit soon to be behind us, I reckon firms such as Epwin have a good chance of thriving. And with the share price near to 78p, the forward-looking earnings multiple for 2020 sits just below seven, which strikes me as undemanding.

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 has recommended Barclays. 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.

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