The economic outlook remains uncertain, but plenty of top-notch dividend shares continue to reward patient investors holding on during this storm.
The industrials and construction industries are two prime examples of sectors losing favour. And while the cyclical downturn is placing pressure on earnings, plenty of rock-solid enterprises are seemingly being sold off on short-term problems.
So much so that two companies in particular are starting to look like attractive buying opportunities in my eyes. Let’s take a closer look.
Eliminating logistical headaches
The global manufacturing industry grows increasingly complex as more specialised components are needed for the latest devices, equipment, and technology. However, what’s often overlooked is the nightmare this creates in terms of supply chains.
RS Group (LSE:RS1) simplifies this entire process by acting as a middleman. Instead of companies building a list of potentially hundreds of different suppliers, they can instead rely on RS Group to source these components on their behalf. With a portfolio of over 750,000 products from more than 2,500 global suppliers, the company has become an essential cog in more than 1.1 million businesses worldwide.
However, the shares are down nearly 30% in the last 12 months as demand slows in the face of weakened economic activity. And with the Purchasing Managers Index dropping to 42.5 in August, the slowdown in sales looks set to continue. As a quick oversimplified crash course, any value below 50 indicates a manufacturing contraction.
But this isn’t the first time RS Group has had to deal with an unfavourable operating environment. With a cash-rich balance sheet, I’m optimistic it will push its way through once again. And in the spirit of buying low, snapping up some shares at a P/E ratio of 12 sounds like a good deal, in my mind.
The residential real estate market is another sector that seems to be in contraction. With interest rates ramping up the cost of mortgages, demand for new housing has slowed. And this has created quite a headwind for Somero Enterprises (LSE:SOM).
The firm designs and develops glorified laser-guided concretely laying machines. While it’s not the most seductive business model, these screed machines have proved immensely popular among contractors for their time, labour, and cost-saving advantages.
The only problem is with residential construction slowing down, demand is falling. And it’s starting to be reflected in the firm’s financial performance. In its latest 2023 interim results, revenue shrank by 14%, with pre-tax profits down by 30%.
Obviously, that’s not an ideal sight for dividends. Yet despite this earnings pressure, shareholder payouts remain intact. The cash-generating nature of this enterprise has flooded the balance sheet with ample liquidity over the years. And with its newest screed machine now in production, management is preparing to continue stealing market share once the economic landscape improves.
The bottom line
Both of these dividend shares are currently facing challenges. Yet fundamentally, they remain uncompromised and leaders in their respective fields. Despite this, both stocks are down by double-digits.
There remains a lot of short-term uncertainty. Nevertheless, I can’t help but think that these stocks have been oversold by impatient investors. And that’s why I’m considering adding these companies to my income portfolio once I have more capital to hand.