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Why I’d grab this growing 3.25% dividend yield today

The market seems to like today’s half-year results report from Motorpoint (LSE: MOTR) and the shares are up a bit as I write. The retailer specialises in vehicles that are nearly new, most of which are up to two years old with less than 15,000 miles on the clock.

I reckon many people looking for a car to buy will target vehicles of that age because two years’ worth of depreciation will have been carved off the selling price. And it’s likely that cars of that age will still be far from their days of being an old banger.

And the firm has expanded well in the market because of strong demand for such merchandise. It started with one site in 1998 and now trades from 12 locations along with running a national contact centre that deals with online enquiries.

Strong cash flow

The company arrived on the stock market in 2016 and the share price has been swinging up and down ever since. However, since April, the stock has risen around 50% to today’s level close to 262p. Meanwhile, today’s report reveals to us a mixed bag of figures. Revenue rose 1% compared to the equivalent period last year and earnings per share dropped by 14%.

Chief executive Mark Carpenter acknowledged in the report that the trading environment has been challenging but pointed to the firm’s “robust” cash generation as evidence of “resilient” trading. Indeed, cash flow from operations came in more than 50% higher than a year ago.  

Carpenter explained that increased overheads affected profit in the period, coming in around £2m higher than the comparable period last year. Half the increase is non-recurring and arose because of “process changes.”  The company has been improving the processes around the preparation of vehicles, and part of that includes the recruitment of a new chief operating officer. The firm also opened a dedicated 10-acre preparation facility in Peterborough. 

The results, so far, have been pleasing with stock days falling and working capital being released back into cash flow. On top of that, the investment in proprietary IT systems continued with the recent appointment of a chief technical officer to “drive further progress”.

Growth in market share

Carpenter said there has been “significant” growth in the company’s market share in the first half of the trading year despite the political situation in the UK leading to another period of “lacklustre” consumer confidence. In the early summer months there was a period of “unusually high” pressure on margins, he said.

But the firm is marching on and plans to open a new site in Swansea in the fourth quarter of the trading year. The directors are also in “advanced” discussions about several other potential new sites. It seems that growth remains on the agenda.

Meanwhile, City analysts expect earnings and the dividend to both grow by low, double-digit percentages in the trading year to March 2021. That estimate throws up a forward-looking earnings multiple just below 12 and an anticipated dividend yield of 3.25%. I think the shares are attractive.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended Motorpoint. 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.