RWS Holdings (LSE: RWS) is a UK share with a £329m market-cap and an 88.5p share price. And its dividend yield is forecast at a whopping 14%.
That can mean the market expects trouble. And looking back over the past five years, we see RWS down a painful 85%. Is this a recovery opportunity, and can the dividend hold up? Let’s take a look.
AI competitive
RWS is in the language translation and support business. That should be sewn up by computers and artificial intelligence (AI), we might think. But there’s a specialisation here in legal, financial, and drug trial documentation. You can’t just take whatever your AI chatbot says and hope for the best — not if you don’t want a whole load of legal risk.
RWS is getting in on AI developments too. And I see a solid opportunity for a combination of its experience and expertise alongside AI automated tools.
But short-term demand has been weak, and RWS posted a 60% drop in first-half adjusted earnings per share in June. The company kept is interim dividend at 2.45p suggesting confidence. And CEO Ben Faes sounded convinced that a technology-led approach will pay off.
My big problem is forecasts show earnings failing to cover the dividend in the next couple of years. So there has to be a chance of a cut. I like the long-term dividend prospects for RWS, but I think investors should consider holding back to see how the next 12-24 months go.
Fund management
The forecast dividend yield at my second pick, AIM-listed Premier Miton Group (LSE: PMI), stands bang on 10%. This also looks like something of a recovery candidate after a several years of profit weakness — and a five-year share price fall of 38%, to 60.3p.
Premier Miton is in the investment management business, which can be very cyclical. And we already see forecasts indicating strong earnings per share (EPS) growth after a low point this year. They see a 3.5-fold EPS rise between 2024 and 2027.
But the same problem raises its head. Those forecast earnings again won’t cover the predicted dividend — expected to remain constant at 6p per share. At least in this case, the company has net cash on its books — £31.2m at 31 March, and forecast to continue about the same.
Keep up the payments?
So I see a good chance the company can afford to keep its dividend going while it awaits the hoped-for uptick in the investment business. That is, unless the board changes its cash-allocation priorities.
And there’s one other risk. Premier Miton is only small, with a market-cap of just £95m. So I see it at a disadvantage to the bigger players in the business. They have the clout to see it through tough times with less pain. And I reckon they’re more likely to retain investor confidence, and win them back, than the small fish in the pond.
Still, I see a strong chance 2025 could mark the turning point. And I rate this one to consider for a longer-term recovery. Eyes peeled for the final dividend.
