With inflation still high and growth companies out of favour, owning at least a few dividend stocks right now makes sense to me. This is especially when they can be picked up on the cheap.
10% yield!
I continue to hold a position in laser-guided equipment manufacturer Somero Enterprises (LSE: SOM) for a number of reasons. One of the most prominent of these is that it’s a fantastic source of income.
Analysts currently have the company returning 43p for every share I own in the current financial year. Using the share price at the close of play on Friday, that translates to a stonking dividend yield of over 10%. That’s probably high enough to wipe out inflation. No small feat.
Based on recent trading, I think this payout looks pretty secure. Back in September, Somero announced record revenues for the first half of 2022. Boosted by a “very strong US market“, it also made no change to guidance for the whole year.
Fear priced in?
Having fallen by a third in value in 2022, Somero changes hands for a seriously low price-to-earnings (P/E) ratio of just under seven. Why so cheap? Well, this is undoubtedly a cyclical stock that could suffer if trading drops off a cliff as we enter a protracted recession.
The question is how much of this fear is already priced in? I suspect quite a lot, but I could easily be wrong. So while I am getting interested in adding to my position in this high-margin, financially robust, market-leading business, I’m also conscious of the need to stay adequately diversified.
Trading well
Some of that diversification could come from international banking, investment and wealth management firm Investec (LSE: INVP). It provides services in both South Africa and the UK.
What’s interesting about the FTSE 250 member is that its shares have actually been rather resilient in 2022, rising 10%. That’s in sharp contrast to other London-listed asset managers, no doubt helped by the fact that Investec focuses solely on supporting high net worth individuals.
Despite this, the shares still change hands for 8 times earnings. Again, this looks pretty cheap.
The income stream is also attractive. While not as high as Somero, the 5.8% yield is projected to be covered more than twice by profit. This makes it a relatively safe bet.
I say relatively because dividends are never guaranteed. As evidence of this, Investec cut its payout in half in 2020. On a more positive note, this reduction proved to be temporary and the company is now back to consistently hiking its cash returns every year.
More to come?
Half-year results are due later this month. Taking the company’s last update into account, I don’t think holders have anything to fear.
Investec said it expected adjusted operating pre-tax profit for the six months to the end of September to come in between £372.6m and £406.2m. Despite a “volatile macro environment“, that’s a big increase on the same period in the previous year (£325.7m).
I don’t expect the shares to rocket on the day but a number near the top end of expectations could certainly see more investors buying in.
Regardless, I’d be interested in acquiring a stake in this company for the income if and when funds are available.