This dividend stock’s too cheap after crashing 10% today! I’d buy it for my ISA

Attention dip buyers! Royston Wild discusses a Tuesday tanker he reckons is a brilliant buy for long-term investors.

| 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.

Investors over at Forterra (LSE: FORT) have been heading for the exits in Tuesday business, leaving ample space for shrewd long-term investors to nip in and grab some action.

The brickbuilder slumped around 10% on Tuesday following a less-than-enthusiastic response to fresh trading numbers (and on top of some profit-booking after recent share price strength).

In the release Forterra said that “while volumes into the new build housing market have remained broadly in line with plan, trading in relation to distributors and non-residential applications has slowed.”

Short-term pain

Brick and block volumes are down in line with the broader market in response to weaker activity, the firm said, while it suggested that further pressure could be expected too. It said that “key indicators such as UK national brick sales volumes, construction output, new housing starts, housing transactions and consumer confidence also point to further uncertainty in macroeconomic conditions.”

Lower sales of its core products aren’t the only problem for Forterra, however. It said that owing to contract delays at its Bison pre-cast concrete division, margins here would likely disappoint in the second half of the year, too.

As a result the small cap said that pre-tax profit for 2019 would likely fall “modestly below” last year’s £64.8m. City analysts had been expecting a figure of around £67.1m.

Forterra’s just one of the many London-listed shares suffering from the political and economic uncertainty that Brexit is wreaking. And as I explained recently, tension over the UK’s future relationship with the European Union is unlikely to go away even if the UK finally exits the continental trading club on 31 October.

Long-term gain!

That’s not to say that I consider this particular share one to be avoided, however. Quite the contrary, in fact. In my opinion, its sub-10 forward price-to-earnings ratio (at 9.9 times), allied with its bumper dividend yields of 4.4% and 4.7% for 2019 and 2020, respectively, make it a terrific buy today.

This bargain-basement valuation provides investors with a cushion should market conditions continue to worsen in the short-term. It’s also worth noting that, despite the company warning that profits will come in below prior forecasts for 2019, those predicted dividends for the next couple of years remain pretty well protected (with earnings covering them by 2 times or more through the period).

Dividend chasers can also take comfort in Forterra’s splendid balance sheet. Today the business confirmed that it “continues to generate strong operating cashflows to support capital investment and the previously announced increased dividend payout.”

Its ability to create shedloads of hard currency meant that Forterra had £32.2m worth of cash and cash equivalents on the books as of June, up 14% from the same point in 2018.

As I say, it’s possible that Forterra will witness some further market turbulence, though in my opinion long-term investors need to grab a slice of the share today. The UK’s desperation for new houses means that the outlook for home construction through the next decade remains compelling.

And when Brexit-related uncertainty resolves itself in the next few years, the weak activity of the moment will be a distant memory as construction activity and thus brick demand comes roaring back.

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »