1 iconic FTSE 250 stock to sweeten up my Stocks and Shares ISA this summer?

I’m wondering if this mid-cap UK stock with its long history could make for a sweet addition to my Stocks and Shares ISA today.

| 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.

A Black father and daughter having breakfast at hotel restaurant

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.

Every month I invest in my Stocks and Shares ISA to help build long-term wealth. Recently, I’ve been looking through the FTSE 250 index for potential opportunities.

One iconic name that always stands out is Tate & Lyle (LSE: TATE). The company is steeped in history and was one of the original constituents of the FTSE 30 index established in 1935.

Its name comes from Victorian-era sugar refiners Henry Tate, who funded the building of London’s Tate Gallery, and Abraham Lyle. The latter gave his name to Lyle’s Golden Syrup, one of the world’s oldest brands.

Nowadays, the company focuses on sweeteners and thickeners after the sugar brands were sold in 2010. It says: “Open any fridge or kitchen cupboard, in any household, in practically any part of the world, and you’re likely to find products containing our ingredients and solutions.”

The dividend-paying stock is down 22% over five years. Should I add it to my ISA this summer?

Created with Highcharts 11.4.3Tate & Lyle Plc PriceZoom1M3M6MYTD1Y5Y10YALL10 Jun 201910 Jun 2024Zoom ▾Jul '19Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '242020202020212021202220222023202320242024www.fool.co.uk

Profits are growing

The firm’s annual report covering the 12 months to 31 March was pretty solid. Adjusted EBITDA rose 7% year on year to £328m, while adjusted diluted earnings per share increased 18% to 55.5p. Free cash flow improved by £49m to reach £170m.

That said, revenue fell 2% to £1.65bn due to easing inflation and a strategic focus on margin improvement over volume, including cost-cutting measures.

It’s worth pointing out that the operating margin has improved from 8.5% in 2019 to 12.6% last year. So that’s encouraging to see.

The company also announced that it has completed the sale of its remaining interest in Primient for $350m. This business deals with ingredients like high fructose corn syrup and corn starch.

Selling the remaining stake in Primient means Tate & Lyle is now focused on speciality food and beverage ingredients. These offer higher margins and potentially faster growth.

The company said net proceeds from the sale would fund a share buyback programme.

Dividend

The stock seems fairly valued at 12 times forward earnings. Another positive thing to note here is that net debt has been reduced significantly. At year-end, it was £153m, down from £626m in 2022.

Last year, the dividend was raised by 3.2% to 19.1p per share, giving a yield of 2.8%. It’s reassuringly covered more than two times by earnings.

However, dividend growth has been disappointing in recent years. And the 3% forward yield doesn’t look too appealing. For context, the yield was 4% two years ago and the share price has fallen 20% since then.

My verdict

Over the last six years, the company has been executing a strategic transformation to become a growth-focused speciality food and beverage solutions business. While margins are certainly heading in the right direction, I think lack of revenue growth might weigh on the stock.

Looking ahead to this year, the firm anticipates slightly lower revenue, with EBITDA growth between 4% and 7%. And analysts aren’t forecasting much top-line action next financial year.

Long term, the global speciality food ingredient market is expected to grow at around 6% on a compound annual basis.

All things considered, it’s hard for me to get excited about either the growth rate or the 3% yield. I’d rather invest in stocks offering much faster growth or 6%+ dividend yields.

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.

Ben McPoland 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

Investing Articles

£20K invested in Tesla stock last April is now worth…

Despite all the bad headlines lately, Tesla stock has put in a storming performance over a 12-month timeframe. Is this…

Read more »

Investing Articles

If a 40 year old invests £600 a month in a SIPP, here’s what they could have by retirement

With no retirement savings at 40, an investor could put £600 a month into a SIPP and grow its value…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

Why hasn’t its 9.9% yield boosted the Phoenix share price?

Phoenix Group has a dividend close to double digits, but saw a weak share price performance in recent years. Christopher…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

With average 10% yields, these mid-cap FTSE shares could supercharge a passive income portfolio

Some of the best passive income gems can be found on the UK's smaller indexes like the FTSE 250 and…

Read more »

A coin being dropped into a piggy bank
Investing Articles

As the Barclays share price tanks 19% in 2 days, is this a great buying opportunity?

As a trade war sends the Barclays share price into a tailspin, Andrew Mackie steps back to look at the…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Is Fundsmith Equity still a good choice for a Stocks and Shares ISA in 2025?

Many Britons hold the Fundsmith Equity fund in their Stocks and Shares ISAs. Is this still a good move? Edward…

Read more »

Investing Articles

Nvidia stock is down 24% this year. Time to buy the dip?

Christopher Ruane has been eyeing Nvidia stock as a potential addition to his portfolio for a while. Is a recent…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Down 25% since January, this resilient dividend stock’s catching my eye

Maintaining the UK’s rail, water, and energy infrastructure isn’t the most exciting business. But it has made this a solid…

Read more »