Could I make shedloads of dividend income from 8,025 Kingfisher shares?

Some shares are better than others when it comes to earning dividend income. So how does this FTSE 100 do-it-yourself retailer measure up?

| More on:
Sun setting over a traditional British neighbourhood.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

I’m a big fan of dividend income. Not because I want to spend it on one-off treats but, instead, I like to use it to buy more shares.

Take Kingfisher (LSE:KGF) as an example. It’s the parent company of B&Q and Screwfix. The group sells everything from sheds to kitchens. On Monday (15 April), a £20,000 investment (ignoring stamp duty and broker’s fees) would have bought me 8,025 shares.

The declared dividend for its financial year ended 31 January (FY24) is 12.40p. Assuming this is repeated for the next 10 years, and I used the cash to buy more shares at their current price, I’d be able to purchase another 5,010 of them. After a decade, assuming no stock price change, my initial stake would have grown to £32,485. That’s enough to buy 73 of B&Q‘s cheapest wooden sheds!

Unfortunately, dividends aren’t guaranteed. And looking at the recent history of Kingfisher’s earnings, it’s easy to see why. They’ve fluctuated significantly from one period to the next. And if profits are volatile, it’s likely that dividend payments will remain erratic.

Financial year (31 January)Profit after tax (£m)Dividend per share (pence)
202083.3
20215925.5
202284312.4
20234718.6
202434512.4
Source: company reports

Difficult times

In 2020, the pandemic clearly played a part in the drop in earnings. But the company’s performance since Covid has been mixed.

It’s doing well in the UK and Ireland but is finding trading conditions more challenging in France and Poland. These two markets accounted for 47% of group revenue in FY24. However, Kingfisher has put into place a plan to restructure operations and cut costs. It also wants to encourage more trade professionals to buy from its 2,000 worldwide stores.

This means directors are forecasting a better year ahead. They’re expecting to achieve a profit before tax of £490m-£550m in FY24 (FY23: £475m).

Although an improvement, it’s not much of one, which probably explains mixed broker opinions. Of the 16 surveyed on the company’s website, four recommend the stock a ‘buy’, eight say ‘hold’ and four suggest their clients should ‘sell’.

Market influences

On the face of it, the DIY industry should do well, irrespective of the wider economy. House repairs need to be undertaken as and when they occur, to prevent further damage.

And if people aren’t moving due to a slump in the housing market, they’re more likely to improve their properties. However, research shows that DIY retailers do better when house prices are rising. That’s because property owners are more likely to spend money improving their homes when they see a greater return on that investment.

Also, when people move home, they take the opportunity to redecorate or upgrade. That’s why the shape of the Kingfisher five-year share price chart looks similar to a graph of UK housing transactions.

Source: The Negotiator / FTB = first-time buyer / BTL = buy-to-let

Final thought

But I already have exposure to the housing market through my shareholding in Persimmon. Therefore, I don’t want another share that’s reliant on the sector.

Otherwise I’d be happy to take a stake in Kingfisher. The shares are yielding a healthy 5% — the average for the FTSE 100 is 3.9%. And there’s a chance they’ll benefit from a recovery in the housing market.

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.

James Beard has positions in Persimmon Plc. 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

Happy couple showing relief at news
Investing Articles

£10,000 in savings? I’d buy 4 passive income shares to target a £100 per week second income!

By buying passive income shares today, I have a great chance to eventually make life-changing wealth. Here's how I'd invest…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

I think this may be an unmissable chance to buy an oversold UK share before it rallies hard

Harvey Jones piled into this beaten down UK share because it looks cheap and offers a sky-high yield. Now he's…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

How I’d invest £500 a month in shares to target a £29,000 second income

Investing in shares is a tried-and-tested way to build a second income. Our writer explains how he’d do it, starting…

Read more »

Investing Articles

Marks and Spencer’s share price rises almost 10% on results day – should I buy?

Adjusted earnings up 45% -- no wonder the Marks and Spencer share price is flying. But there may be much…

Read more »

The words "what's your plan for retirement" written on chalkboard on pavement somewhere in London
Investing Articles

2 UK shares I’d buy and hold in a Stocks and Shares ISA for the long term

Harvey Jones is keen to start using this year's Stocks and Shares ISA allowance. These two FTSE 100 companies are…

Read more »

Investing Articles

If I’d invested £10,000 in BT shares 5 years ago, here’s how much passive income I’d have now!

Dividend investing can be a game changer for passive income, but how would an investment in BT have performed over…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

The Vodafone share price is only 75p. I think it could go much higher

The Vodafone share price has had a horrible five years. But if the firm's new shake-up works out well, it…

Read more »

Investing Articles

How I’d look for cheap shares to buy for an empty ISA, before it’s too late

With the Footsie rising, there are fewer dirt cheap shares around. I want to buy as many as I can…

Read more »