Many investors, including myself, look to the stock market as a way of generating additional income through dividend shares. I like to find high-quality companies that have paid consistent dividends for many years.
This approach can act as a great form of diversification within a portfolio. This is because a steady stream of additional income can help to offset any short-term share price falls. Furthermore, if you can find the right opportunity, this can become a fairly passive approach to investing.
For this reason, I look for companies within the FTSE that are paying significant dividends and have high-quality fundamentals to accompany them. Here’s one I found.
A tough few years
Vistry Group (LSE: VTY) is a UK-based residential construction company. It operates through two main business segments — housebuilding and partnerships. All of its operations are focused within England.
It would be fair to say that the company has not had the best few years. The share price is down 52.7% in 2022. Furthermore, the price has fallen almost 62% from pre-pandemic levels. Despite this, the dividend characteristics of the company are very appealing, with a current yield of 10.7%.
Impressive dividend
Vistry’s yield is also forecast to hit 13% next year. This is considerably above the FTSE 100 average of 3.8%. Vistry has paid this dividend consistently for 12 years, and the yield has grown over both of the last two years. Despite this significant yield, the company is still able to pay that level comfortably, with a dividend cover ratio of 2.1
I also find the Vistry’s underlying fundamentals attractive, with low levels of debt and strong cash generation. The company has achieved a reasonable level of earnings generation on invested capital, which is a core indicator of a share’s quality.
Vistry has grown turnover consistently over the last five years, and despite a tough 2020, underlying earnings have now exceeded pre-pandemic levels. I believe these are both good signs, as a high dividend needs to be accompanied by strong company performance.
Challenging headwinds
However, it is important for me to remember that the sizeable fall in share price over the last two years has boosted the yield. This means that if the share recovers, the yield is likely to fall back to the levels seen pre-pandemic of 2.1%. Furthermore, the housing sector is exposed to several headwinds, such as interest rate rises and the cost-of-living struggles.
Nonetheless, I believe that this current yield presents a great opportunity. The ability to add a company with an elevated yield, and strong underlying fundamentals, is very appealing. Therefore I would add this dividend share to my portfolio over the coming month, once I put together the necessary funds.
