One value stock with a juicy 6% dividend yield investors should consider buying

Sumayya Mansoor thinks this value stock looks like a great opportunity with its enticing dividend yield and attractive valuation.

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One value stock I think could be a shrewd buy right now is Investec (LSE: INVP). Here’s why investors should consider snapping up some shares ahead of any market recovery.

Specialist banking

Investec is a specialist banking business providing its client base with a variety of financial products and services. These include investment banking, treasury, and specialized finance as well as asset management and private client activities. It primarily operates in South Africa and the UK.

Investec shares have remained consistent over a 12-month period as they’re trading for 433p now compared to 436p a year ago. However, they’ve struggled since macroeconomic volatility began impacting markets. Since March, they’re down nearly 20% from 546p to current levels. This puts them in the value stock category for me personally.

The investment case

Soaring inflation and rising interest rates have hampered most businesses in some way. So I’m not surprised Investec shares have suffered. However, there’s a great opportunity to pick up shares cheap today on a price-to-earnings ratio of just five. That’s considerably lower than the FTSE 100 average of 14.

Next, Investec released a pre-closing trading statement for the period ended 30 September that made for good reading. The bank expects to report operating profit of between £428.7m and £449.6m. This would be a considerable rise on the £405m it reported in the same period last year. If such strong trading momentum continues, I don’t think Investec will remain a value stock too much longer.

Finally, the passive income opportunity looks good right now. A dividend yield of 6.8% looks well covered by profits. Furthermore, this yield is much higher than the FTSE 100 average of 3.8%. However, I’m conscious that dividends are never guaranteed.

From a risk perspective, I’m wary that South Africa, one of Investec’s core regions of operation and where the business was founded, can be deemed politically unstable. Furthermore, it is rife with corruption too. This doesn’t exactly instil confidence because these issues can impact performance, sentiment, and returns.

Another issue that could hinder Investec is its growth aspirations, especially through mergers and acquisitions. When acquisitions work out, they can boost a firm’s performance and profile. However, when they don’t work out they can be costly to dispose of and cause untold damage on a balance sheet as well as investor sentiment.

A value stock I’d buy

Taking into account the pros and cons, I’d happily buy Investec shares for my holdings when I next can. A great valuation, a well-covered passive income opportunity and recent positive trading helped me make my decision.

I do understand that market volatility as well as Investec’s operations in South Africa could cause some shorter-term issues. However, I’m more optimistic about the positive future of this value stock in the long term, which I’d define as a five to 10-year period.

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.

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