Image supply: Getty Images
The FTSE 100 nonetheless stays dwelling to most of the UK’s highest dividend payers. That stated, its medium-cap cousin, the FTSE 250, nonetheless has quite a few respectable names. One explicit share that stands out to me is Dunelm (LSE:DNLM), which has a ahead dividend yield of 6.8%.
Furnishing good outcomes
Having hit a number of report highs over the pandemic, Dunelm shares dropped by as a lot as 50% final yr. That’s as a result of because the cost-of-living disaster loomed, traders had been frightened that demand would drop catastrophically. Thankfully, such fears had been overdone, and the FTSE 250 inventory has now recovered virtually all of its losses, and is up 80% from its backside.
In reality, Dunelm shares have continued their upward momentum this yr with an additional 25% achieve. This is on the again of a better-than-expected set of half-year outcomes, as the corporate practiced “tight commercial discipline and operational grip”.
|Metrics||H1 2023||H1 2022||Growth|
|Profit earlier than tax (PBT)||£117m||£141m||-17%|
|Free money circulation (FCF)||£102m||£106m||-4%|
|Diluted earnings per share (EPS)||45.8p||55.4p||-17%|
Despite not being a shareholder presently, it’s all the time a pleasure to see the FTSE 250 agency do effectively. This is very the case after I made quite a few bullish calls final yr, citing the retailer’s sturdy proposition in delivering worth throughout a cost-of-living disaster, all whereas rising its market share.
Nonetheless, I regrettably offered my stake again then because the inventory had hit my worth goal. Had I caught it out, I might’ve earned a good-looking achieve of 60%. That stated, I’m planning to reinvest in Dunelm because it continues to impress on all fronts and, extra lucratively, for its particular dividends.
In its half-year report, the group introduced a particular dividend of 40p per share. Considering a forecast of 28p for its last dividend later this yr, and 16p for subsequent yr’s interim dividend, this presents a stable 6.8% yield if I had been to purchase Dunelm shares as we speak.
Aside from its dividend, although, there are additionally loads of different the reason why I’m eager on investing within the retailer. For one, Dunelm’s rising market share in homewares and furnishings exhibits conviction, because it exhibits the conglomerate’s drive in rising its enterprise effectively. This is backed by a rising variety of lively clients (+5.7%) and better purchasing frequencies (+4.8%).
I’m additionally an enormous fan of its strong steadiness sheet, which boasts a wholesome debt-to-equity ratio of 10%. Pair that with a quickly rising free money circulation and it’s no marvel the furnisher is paying particular dividends. What’s extra, the preliminary headwinds that plagued the FTSE 250 constituent are actually beginning to fade. Inflation is starting to taper off, and the Bank of England is anticipating a softer recession.
Nevertheless, I’ve my reservations too. The essential one being that each its present and future valuation multiples aren’t precisely the most cost effective. As such, it’s no shock to see the shares with a median worth goal of £12.90, presenting a minimal 5% upside from as we speak’s worth.
|Price-to-sales (P/S) ratio||1.5||0.7|
|Price-to-earnings (P/E) ratio||16.4||11.4|
|Forward price-to-sales (FP/S) ratio||1.5||0.7|
|Forward price-to-earnings (FP/E) ratio||17.2||13.9|
Even so, I imagine these estimates haven’t thought-about a possible rebound of the housing market, which may see greater gross sales over the medium-to-long time period. The inventory is actually on the pricier finish, however I imagine it’s nonetheless pretty valued given its upside potential, free money circulation technology, and robust shareholder returns, therefore why I’ll be investing. After all, Warren Buffett as soon as stated, “Price is what you pay, value is what you get”.