Why I’d grab this growing 3.25% dividend yield today

Process improvements and resilient trading make this company attractive 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.

The market seems to like today’s half-year results report from Motorpoint (LSE: MOTR) and the shares are up a bit as I write. The retailer specialises in vehicles that are nearly new, most of which are up to two years old with less than 15,000 miles on the clock.

I reckon many people looking for a car to buy will target vehicles of that age because two years’ worth of depreciation will have been carved off the selling price. And it’s likely that cars of that age will still be far from their days of being an old banger.

And the firm has expanded well in the market because of strong demand for such merchandise. It started with one site in 1998 and now trades from 12 locations along with running a national contact centre that deals with online enquiries.

Strong cash flow

The company arrived on the stock market in 2016 and the share price has been swinging up and down ever since. However, since April, the stock has risen around 50% to today’s level close to 262p. Meanwhile, today’s report reveals to us a mixed bag of figures. Revenue rose 1% compared to the equivalent period last year and earnings per share dropped by 14%.

Chief executive Mark Carpenter acknowledged in the report that the trading environment has been challenging but pointed to the firm’s “robust” cash generation as evidence of “resilient” trading. Indeed, cash flow from operations came in more than 50% higher than a year ago.  

Carpenter explained that increased overheads affected profit in the period, coming in around £2m higher than the comparable period last year. Half the increase is non-recurring and arose because of “process changes.”  The company has been improving the processes around the preparation of vehicles, and part of that includes the recruitment of a new chief operating officer. The firm also opened a dedicated 10-acre preparation facility in Peterborough. 

The results, so far, have been pleasing with stock days falling and working capital being released back into cash flow. On top of that, the investment in proprietary IT systems continued with the recent appointment of a chief technical officer to “drive further progress”.

Growth in market share

Carpenter said there has been “significant” growth in the company’s market share in the first half of the trading year despite the political situation in the UK leading to another period of “lacklustre” consumer confidence. In the early summer months there was a period of “unusually high” pressure on margins, he said.

But the firm is marching on and plans to open a new site in Swansea in the fourth quarter of the trading year. The directors are also in “advanced” discussions about several other potential new sites. It seems that growth remains on the agenda.

Meanwhile, City analysts expect earnings and the dividend to both grow by low, double-digit percentages in the trading year to March 2021. That estimate throws up a forward-looking earnings multiple just below 12 and an anticipated dividend yield of 3.25%. 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 considered so you should consider taking independent financial advice.

Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended Motorpoint. 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

Black woman using loudspeaker to be heard
Investing Articles

GSK shares plummet 15% in a week! What’s going on here?

GSK shares had a bad time last week. They're down 15% as investors' sentiment soured ahead of litigation proceedings in…

Read more »

Burst your bubble thumbtack and balloon background
Investing Articles

Stock market recovery: have all the bubbles now burst?

Asset bubbles keep on coming, and here's what I'm doing to navigate through them and invest for the stock market…

Read more »

Shot of an young Indian businesswoman sitting alone in the office at night and using a digital tablet
Investing Articles

How I’d invest £290 a month in UK shares for a passive income that beats the State Pension

UK shares can offer a lucrative path for passive income. Our writer considers a plan to double his State Pension.

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

3 of the best shares to buy now with £2,000

I reckon the best shares to buy now have strong growth in earnings and recent good news flow, such as…

Read more »

Young female analyst working at her desk in the office
Investing Articles

How I’m aiming for £500 a month in income from dividend stocks 

Here's my three-step plan for achieving a growing income from dividend stocks and three companies I'd use to help execute…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

UK shares are cheap! So why is Warren Buffett ignoring them and should you too?

Many British shares are trading cheaply and pay dividends. This is normally the hunting ground for Warren Buffett, yet he's…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

How I’ve increased my passive income by 600%

Finding the right opportunities can bring spectacular results. Here’s how our author has managed to increase his monthly passive income…

Read more »

Blue NIO sports car in Oslo showroom
Investing Articles

Could lithium shares make my Stocks and Shares ISA a goldmine?

Our writer is considering buying lithium shares for his Stocks and Shares ISA. Here, he outlines the decision process he…

Read more »