I want to boost my passive income stream through dividend stocks. My stance on such stocks has been to aim for those that provide consistent returns now, as well as being able to build this level of return up in the future.
With that in mind, I believe Hill & Smith (LSE:HILS) could be a great passive income stock for my holdings. Here’s why.
Roads and infrastructure
As a quick introduction, Hill & Smith is a supplier of infrastructure products such as road safety barriers, plastic drainage pipes, zinc coating for steel structures, and bridges. It is best known for building the crash barriers found on roads but also offers other road safety products such as lighting.
So what’s happening with Hill shares currently? Well, as I write, they’re trading for 1,214p. At this time last year, the stock was trading for 1,757p, which is a 30% drop over a 12-month period. I believe the shares have dropped due to macroeconomic headwinds coupled with the geopolitical events in Ukraine.
A passive income stock with risks
As with any dividend stock, dividends are never guaranteed and can be cancelled at the discretion of the business to conserve cash. A prime example of this is when the pandemic struck.
In relation to Hill itself, macroeconomic headwinds could hamper progress and returns. Soaring inflation, the rising cost of materials, and the supply chain crisis, could hurt performance and returns. Rising costs can place pressure on profit margins which underpin dividends. Furthermore, in times of economic uncertainty, infrastructure spending can be curtailed. I do view this final issue as a short-term risk, however.
Why I like Hill & Smith shares
Let’s take a look at the positives then. Firstly, I believe Hill & Smith shares have some defensive capabilities. This is because roads are essential in the modern world and safety barriers are a key part of this. Hill has an excellent profile and provides its products throughout the developed world. This should boost performance and any passive income I hope to make.
Next, infrastructure spending in the world is only increasing in the longer term. This includes the number of roads and buildings, both domestic and commercial, to cope with an increasing global population. This increase in spending should boost Hill & Smith’s future performance.
Next, at current levels, Hill shares offer a modest dividend yield of 3%. This is higher than the FTSE 250 average of just under 2%, however. A key part of my investment strategy is to focus on the long term. I would expect this rate of return to continue growing based on Hill’s defensive abilities as well as increased infrastructure spending worldwide.
Finally, I can see that Hill has a consistent track record of performance. I am aware that past performance is not a guarantee of the future, however. Looking back, it has recorded consistent revenue for the past four years and profit growth in the past two years. In fact, 2021 was its highest performance recorded based on revenue.
In conclusion, I believe Hill & Smith is an excellent passive income stock that could boost my holdings now and for the foreseeable future. I would add the shares to my portfolio.
