The Motley Fool

1 cheap dividend stock to buy now

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Image source: Getty Images

Being keen to buy shares in a company that recently slashed its dividend sounds odd. However, that’s exactly what I’d consider doing with one FTSE 250 member right now. Let me explain.

Dividend cut!

The stock in question is online trading platform provider CMC Markets (LSE: CMCX). Earlier this month, the company stated that it would be slashing its half-year dividend by no less than 62% in light of a downturn in business. 

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Admittedly, the latest set of interim results wasn’t great. Net operating income tumbled 45% to £126.7m in the six months to the end of September. At £36m, pre-tax profit was an eyebrow-raising 74% lower than in 2020.

The key point to grasp, however, is that none of this is unexpected. The reduction in market volatility seen this year, and subsequent drop in client activity, was always on the cards. A better comparison to make is between this year’s interim figures and those of two years ago. Here, we get a very different picture. Net operating revenue and pre-tax profit were up 24% and 20% on the same period in 2019.

There were other things that the market seemed to ignore, including the 10% rise in active client numbers in CMC’s non-leveraged (stockbroking) business. Already contributing 20% of net operating income, it’s this part of the company that CEO and founder (Lord) Peter Cruddas believes offers “the greatest growth potential”.

Why I’d buy this cheap dividend stock

Yes, that huge dividend cut isn’t ideal. However, what remains still looks attractive. Analysts now have the company returning 10.5p per share for the full year. That’s a yield of 4.5%. Hardly shabby and — importantly — easily covered by profit.

As a fan of founder-run companies, I also really like the fact that Lord Cruddas still owns almost 57% of the company’s stock. This should mean that his interests are aligned with those of private investors. Speaking of which, CMC’s board is now considering separating the aforementioned stockbroking and spread betting businesses for the benefit of shareholders. A review on this is expected to be completed by June 2022. A new UK investment platform is planned to launch at some point next year too. So the outlook is hardly bleak.

Last but not least, the valuation is mightily tempting. As things stand, CMC trades on a P/E of 10. That’s competitive compared to rivals and cheap as chips compared to the market as a whole.

Regulatory risks

Naturally, nothing can be guaranteed. As recent performance has shown, many investors seem to have a love/hate relationship with CMC. A drop in the share price of over 50% in the last six months shows just how quickly sentiment can reverse after a purple patch (it’s up 64% year-on-year). There’s no rule to say it won’t fall further.

Then there are the ongoing regulatory risks to consider. CMC is often required to adapt to new rules brought in to protect clients from, well, themselves. This partly explains why the valuation isn’t demanding, despite CMC Markets generating stonking returns on capital and boasting a solid balance sheet.

Ready to recover

I already hold industry peer IG Group within my portfolio. Nevertheless, I must say that CMC looks highly attractive if I can ensure I’m sufficiently diversified elsewhere.

Considering the renewed skittishness of traders over recent days, I reckon now is actually a great opportunity to snap up the stock before it’s back in favour.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies still trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Paul Summers owns shares in IG Group. 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.

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.