Should I buy this dividend stock with its 4% yield?

Our writer explains why this financial services business could be the ideal dividend stock to boost her passive income.

| More on:

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.

Person holding magnifying glass over important document, reading the small print

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

One dividend stock I’m considering adding to my holdings is Ramsdens Holdings (LSE: RFX). Is now a good time to buy some of the shares, with a view to boosting my passive income stream?

Financial services and retail

Ramsdens is a diverse business, operating in four core segments. These are foreign currency exchange, pawnbroking loans, dealing in precious metals, and selling new and second-hand jewellery.

Let’s start by taking a look at the share price activity. As I write, the shares are trading for 220p. At this time last year, they were trading for 193p, which is a 13% increase over a 12-month period.

Pros and cons

The firm’s diverse offering is a plus point and a key characteristic I look for in any dividend stock. Through its four business areas, it is able to protect itself from volatility to a degree. One thriving area of the business could offset another that may be struggling. Furthermore, Ramsdens is looking to grow its store presence as well as overhaul its online offering, which is now adding real value to the bottom line and boosting performance.

Next, the pawnbroking and retailing businesses are in a position to thrive due to the current cost-of-living crisis. When consumer income comes under pressure due to macroeconomic factors, these types of businesses do well.

I believe my above point is supported by Ramsdens’ latest earnings report, a half-year trading statement released in June for the six months ended 31 March. Revenue jumped up by nearly 70% compared to the same period last year and pre-tax profit increased by 33%. In fact, all four segments saw double-digit growth in performance and the business opened nine new locations.

As with any dividend stock, I’m interested in the level of return. Ramsdens’ dividend yield of 4.3% is enticing. It hiked its interim dividend by 22%, which is an indicator as to how well the business is doing. However, I am aware that dividends are never guaranteed.

From a bearish perspective, tightening regulation in the pawnbroking sector is a looming spectre that could impact Ramsdens’ business negatively. A change in regulation could hinder its level of returns overall as pawnbroking is one of its most lucrative segments.

Next, Ramsdens could experience a short-term spike in performance like now, due to the current cost-of-living crisis. If the economy were to stabilise, it could experience decreasing numbers of customers using its services. This could hinder any passive income I’m hoping to make.

A dividend stock I would buy

After reviewing the pros and cons, I’ve decided I would be willing to buy Ramsdens shares for my holdings if I had the spare cash to invest.

I believe the diversified offering, growing market presence, and passive income opportunity are too good to miss out on right now. Plus, the shares look good value for money too right now on a price-to-earnings ratio of nine. I believe Ramsdens could be a great dividend stock for me, providing me with consistent and stable returns.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Sumayya Mansoor has no position in any of the shares mentioned. 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.

More on Investing Articles

Close up of a group of friends enjoying a movie in the cinema
Investing Articles

I’m eyeing these two cheap dividend shares for 2024!

This Fool likes dividend shares as a play for 2024. Here, he identifies two that look cheap and explains why…

Read more »

Investing Articles

This FTSE 250 growth machine is top of my list of stocks to watch in 2024

Despite a 13% fall, Games Workshop shares trade at a P/E ratio of 22. Stephen Wright plans to keep a…

Read more »

Investing Articles

The Tesla share price is a bargain to me

A lot of people think the Tesla share price is overvalued. Oliver Rodzianko disagrees. He tells us why he’s piling…

Read more »

Investing Articles

The BT share price is up 20% in a year. Should I buy now for 2024?

The BT share price has performed strongly so far in 2023. Christopher Ruane thinks it might keep moving up --…

Read more »

Light bulb with growing tree.
Investing Articles

One 9p penny stock I’m loading up on in 2024

This penny stock has fallen more than 50% over the past two years despite encouraging progress being made at the…

Read more »

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

Should investors rush to buy Lloyds shares before the end of the year?

UK bank stocks have been trading at low prices since the crisis in March. But Stephen Wright thinks Lloyds shares…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

£8,000-£9,000 of savings? Here’s how I’d aim to turn that into passive income of £360 a month

With less than £10,000 in savings, our writer thinks he could aim to set up monthly passive income streams averaging…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

3 simple Warren Buffett moves I reckon could help me turn £1,000 into £100,000!

Warren Buffett has turned a £1,000 investment into one worth an incredible £70m over the decades. This writer is taking…

Read more »