As the cost-of-living crisis drags on, I’ve been looking to add more dividend shares to my portfolio. Receiving a proportion of a company’s profits as cold, hard cash is one way of keeping up with rising prices.
A reversal in market sentiment could also make me a decent profit too, especially if I buy when valuations aren’t stretched.
Here’s one example that catches my eye.
Sticky patch
Share prices of companies operating in the financial sector haven’t fared well of late due to multiple economic headwinds. This is particularly the case with asset managers.
Of course, this shouldn’t come as a surprise. It’s only natural that demand for their services should go down when investors are keen to take their cash out of the market, or at least disinclined to put new money to work. However, it’s this cyclicality that piques my interest.
The time to buy in is when things look pretty grim. And I suspect (but can’t guarantee) we’re close to the bottom of the cycle right now.
Ready to roar?
Liontrust Asset Management (LSE: LIO) is my pick in the space. Since hitting a high of nearly 2,500p a pop in September 2021, its share price has tumbled 60% or so to 1,000p. Scary as that may be, there are a few reasons why I like this stock.
While fairly average among peers, margins are very healthy relative to the market as a whole. There’s barely any debt on its balance sheet either.
I also wonder whether we’ve seen the worst in terms of investors wanting to flee the market.
In its last update to the market (January), the company revealed that net outflows hit £632m in the last three months of 2022. That might seem bad but it was actually an improvement on the £1.6bn in the previous quarter.
This suggests investors’ nerves are starting to settle.
Mighty dividend yield
Liontrust gets another tick in the box for its dividend credentials. Assuming estimates are on the nose (while maintaining an open mind here), the company is forecast to return 72p per share in FY24. At the current share price (as I type), that gives a mighty yield of 7.2%. By comparison, the FTSE 250 index that counts Liontrust as a member yields just 3.2%.
The only downside is that the payout would be the same as that returned in 2022. Generally speaking, a stagnant dividend is not attractive.
In Lionstrust’s defence, keeping the total dividend steady for now strikes me as prudent until the good times return. It’s also worth noting that shareholders enjoyed several years of consistent hikes prior to this.
My verdict
Buying a slice of Liontrust clearly isn’t without risk and the possibility of a recession still looms large. The question to ask is how much of this is already priced in. Available for just 10 times forecast earnings (based on existing projections from analysts), I’d say quite a lot.
However, it’s worth remembering that expectations can be, and often are, revised. This is why maintaining at least some degree of diversification within a portfolio is always vital.
Since my Foolish training has ensured this is already the case, I’d be willing to buy this cheap dividend share today if I had the cash available.
The post 7.2% yield! I’d buy this dirt cheap dividend share appeared first on The Motley Fool UK.
Pound coins for sale — 51 pence?
This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
See the full investment case
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Paul Summers has no position in Liontrust Asset Management Plc. The Motley Fool UK has recommended Liontrust Asset Management Plc. 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.