The Motley Fool

A cheap UK dividend growth share I’d buy in my ISA this March

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.

Image of person checking their shares portfolio on mobile phone and computer
Image source: Getty Images.

Dividends took an almighty smack in 2020 as Covid-19 damaged corporate profits and bashed balance sheets. But it looks like payout levels from UK shares might recover strongly in the later half of this year. That’s on condition that the economic recovery kicks in as expected, of course.

The possibility of handsome dividend growth over at Halfords Group (LSE: HFD) makes this one UK retail share worth serious attention, in my opinion. The company’s share price rocketed to two-and-a-half-year highs this week on the back of a robust trading update. Though news of soaring cycling and auto-services sales weren’t the only things that caught people’s eyes.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story. In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Are dividends set to soar?

Analyst Sophie Lund-Yates of Hargreaves Lansdown said: “The strong trading update means it’s likely the balance sheet is still in good nick… Quite what the group plans to do with that stash is unknown, but an attractive dividend can’t be ruled out.” Strong trading and cost slashing helped Halfords enjoy net cash of £97.8m as of the beginning of October.

City analysts tend to think annual dividends will soar over the medium term. A 1.1p total dividend is predicted for the outgoing financial year (to March 2021). And this jumps to 7.9p for fiscal 2022, which in turn drives the yield to an inflation-beating 2.4%. Next year’s bulky payout is covered 2.6 times by anticipated earnings too, giving investors extra confidence that Halfords will meet current estimates. A reading of 2 or above is widely considered as being quite robust.

Bear in mind that trading at this UK retail share might begin to struggle later in 2021, however. And this could naturally have an impact on actual dividend levels. Firstly, demand for cycles might slump as Covid-19 lockdowns are rolled back and gyms reopen. It could also see demand for its high-ticket products fall if a long and painful downturn in the British economy kicks in.

A UK bargain share

I still think Halfords is a very-attractive dividend stock for long-term investors like me. Its strongly-performing Autocentres services arm should continue gaining market share as it expands. The company eventually plans to have 1,000 garages on its books, up from the 370 or so workshops it currently operates.

Jaunty demand for its bikes and cycling products could also remain a thing as people avoid public transport post-pandemic. Rising environmental concerns could see people increasingly leaving the car at home in favour of pedal power. And rising health awareness could keep its bikes rolling out of stores too.

Today Halfords trades on a sub-1 forward price-to-earnings growth (PEG) ratio of 0.6. It’s a reading that suggests that the UK retail share might still be undervalued despite its share price leap this week. I’d happily buy this dividend stock for my Stocks and Shares ISA today.

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

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

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.