One value stock that caught my eye recently is DCC (LSE: DCC). Here’s why I like the look of it.
Primarily energy businesses
DCC is not a household name, but this is because it operates as a conglomerate, meaning it owns and operates many businesses under their own brand names. It has interests in the energy, healthcare, and technology sector.
Let’s take a look at DCC’s share price. As I write, the shares are trading for 4,395p. At this time last year, they were trading for 5,268p, which equates to a 16% drop over a 12-month period. Many UK shares have fallen during macroeconomic struggles in recent months. This has simply thrown up many opportunities on the market, in my opinion.
Why I like DCC as a value stock
To start with, I like DCC’s diversification in its operations. Diversification is useful if one part of the business is struggling. A bit like now, in fact. DCC’s healthcare arm is struggling whereas the energy businesses are thriving. In addition to this, DCC is also active in the technology sector too, which is considered a growth market generally as tech evolves and grows.
Moving onto the energy businesses, DCC is one of the leading suppliers of bottled gas in many markets throughout the world and has a dominant position in this field. Last year, energy accounted for 70% of the company’s total operating profits of £656m. The recent high cost of energy has no doubt helped here, in my opinion.
Next, DCC has an enviable record of dividend payout. It has increased its payout for the past 29 years consecutively! This is remarkable, in my opinion. At present, its dividend yield stands at a healthy 4.2%. I do understand that dividends are not guaranteed and past performance is no guarantee of the future.
In addition to this, DCC looks like an ideal value stock to me as its valuation looks enticing on a price-to-earnings ratio of just 12.
Risks and what I’m doing now
From a bearish perspective, DCC’s recent surge in profits related to higher costs of gas can’t help but make me wonder what would happen if gas prices were to fall. Could profit and returns be impacted? I believe this is an issue to keep an eye on.
Furthermore, DCC funds acquisitions through debt. Although I’m a fan of acquisitions, as these can boost growth and earnings, debt is risky. This is especially true right now as interest rates are rising, which can make servicing debt costlier. This could impact investor returns.
Overall I believe DCC is a great value stock to buy and hold. If I had the spare cash to invest, I would buy some shares for my holdings.
DCC’s enviable dividend record, as well as current level of payout and valuation, as well as its diversification, helped me make my decision. It is also looking to boost growth through strategic acquisitions and possesses a good track record of this too.
