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Forget a Cash ISA! I’d buy this recovering stock and its 3.75% dividend yield

Fast-moving consumer goods firm PZ Cussons (LSE: PZC) delivered its full-year results report this morning for the trading year to May.

As previously flagged to the market, the figures are quite poor with like-for-like revenue down 2.6% compared to the previous year, adjusted operating profit almost 10% lower, and adjusted basic earnings per share down close to 3%.

Figures down, share-price up

If a firm can’t even make its adjusted figures look good, we know for sure the numbers are bad, in my view! But at 225p as I write, the share price is just over 11% higher than my last article on the company in June, and more than 26% higher than the nadir seen in January. Indeed, operationally, the trend is upwards based on expectations, and that’s reflecting in the elevating trend of the share price.

City analysts following the company anticipate robust single-digit percentage advances in earnings for the current trading year and the year after that. PZ Cussons is in recovery mode and, as such, I think it’s a good time for me to run my analyses over the stock with a view to adding it to my long-term retirement portfolio.

The report explains that the revenue decline was driven by “weak” economic conditions in Africa. I reckon the Africa situation has been responsible for much of the share-price retreat over the past few years. Happily, a “solid performance” in the Asia Pacific region, Europe and the Americas partially offset the revenue plunge. And it was a similar story with operating profit. A strong result everywhere else dragged down by losses in Africa.

But there were bright spots. Net debt fell almost 8% to just over £152m because of a stronger focus on cash management throughout the business.” And cash is key to the attraction of the stock, to me. I’ve been a fan of the fast-moving consumer goods sector for a long while due to its often predictable and steady cash-generating qualities. Decent cash flow makes it easier for firms to keep up their dividend payments to shareholders.

A new strategy and positive outlook

The directors reckon they have a new strategy aimed at delivering increased focus and scale, which should help the company “return to profitable growth.” Meanwhile, management held the dividend level flat, “reflecting good cash generation and confidence in the new strategy.” I find that stance to be encouraging, because any cut in the dividend would surely have caused a plunge in the share price, thus reversing the stock’s recovery and frustrating existing shareholders.

Looking ahead, the company isn’t expecting a change from “challenging” economic conditions in any of its regions, including troubled Africa. But revenue growth is still on the cards because of the new strategy, which will increase resources and investment behind key product categories and brands. 

Meanwhile, the forward-looking earnings multiple for the current trading year to May 2020 sits just below 18 and the anticipated dividend yield is 3.75%. My guess is that if I bought some of the shares today, I’d be glad I did when it comes to my retirement several years from now.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK owns shares of PZ Cussons. 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.