1 magnificent dividend for recurrent passive income

This company has a low valuation, a high dividend yield for income, and a long record of continuous shareholder payments.

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Some dividends have staying power and can be a great source of ongoing income for stock investors.

One example is Johnson Matthey (LSE: JMAT), the sustainable technologies and chemicals business with operations based around the use of platinum.

The company has been paying shareholder dividends continuously since at least 1999. Over the past 25 years, the total ordinary annual shareholder payment has risen from 19p per share to 77p per share.

A keen valuation

But can such progress continue? One of the uncertainties is the business makes much of its money from vehicle catalytic converters.

These devices use chemical reactions to reduce the amount of dangerous gases emitted from exhausts. But the tilt towards electric vehicles means the firm’s core business will likely decline.

The share price has been responding to such fears for some time.

That chart looks grim. But the downward trajectory of the stock has made the valuation appealing, and City analysts are optimistic about future profits.

There’s likely to be robust double-digit percentage progress for earnings in the current 12-month trading period to March 2025 and the year following.

One of the strengths of the business is it’s been around for many decades and has a strong research and development operation. The company’s collective knowledge and technologies are relevant to modern applications.  Therefore, the business has the potential to play a big part in a profitable, greener future.

In May with the full-year report, chief executive Liam Condon was upbeat. The firm’s clean air and platinum-group metal (PGM) services generate cash and provide a “strong” platform for newer operations to build on.

Shifting into new markets

The company is developing and growing its catalyst and hydrogen technologies to support and profit from energy transition trends and a net zero future.

Meanwhile, Condon said the slowdown in market penetration of battery electric vehicles means the firm’s clean air business will likely be “stronger for longer”.

City analysts expect the dividend to remain essentially flat this year and next. So they’re not anticipating a major decline in the firm’s cash flows.

What’s needed here is an orderly shift in revenues, earnings and cash flows from catalytic converters towards the upcoming markets and technologies developing for the future. And the company seems to be quietly confident it can move with the times without suffering a downturn in overall business activities.

The change will likely unfold over years, rather than mere months. However, there’s no guarantee the company can maintain its levels of cash flow and shareholder dividends throughout the process.

Positive outcomes are not certain and the stock’s weakness may prove to be justified. That’s perhaps the biggest risk here for shareholders.

Nevertheless, with the share price near 1,640p, the forward-looking price-to-earnings rating for next year is just below seven and the anticipated dividend yield is a little over 4.7%.

To me, that’s a low-looking valuation, and it may help to soften some of the risks if the company can maintain its dividend payments in the coming years. I’d do more research now and think about buying some of the shares to hold for the long term.

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.

Kevin Godbold 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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