James Halstead (LSE:JHD) shares come with a 7.2% dividend yield. That’s a 10-year high and income investors should take note.
A lot of stocks have been falling recently. But the company doesn’t look like it’s in danger of AI disruption – in fact, the reverse might be true.
Laying the groundwork
James Halstead’s a name that probably isn’t on many investor radars. But it should be. The company makes specialised flooring for places such as hospitals and – you guessed it – data centres.
You can’t just put any old lino in these places. Electrostatic discharge compliance is a legal requirement for data centres. That’s valuable for James Halstead, which makes compliant products. And it means the firm can maintain relatively strong margins.
So far, so good. But if it’s such a good business and supplies an industry that’s clearly growing, why’s the stock down?
Why’s the stock down?
The short answer is that the business has been going backwards. The company’s latest interim update reported lower sales and profits. Revenues fell from £130.1m to £127.2m and operating profit was also down. And there were a few reasons for this.
One of the biggest was UK customers cutting their inventory levels. That’s one of James Halstead’s largest markets. There’s not a lot the company can do about this. But it certainly does have a good grip on the things it can control.
A strong balance sheet puts the firm in a strong position to withstand a downturn. And demand can’t stay subdued forever.
Repeat business
A construction downturn might weigh on demand for new flooring. But there’s another source of demand that’s less cyclical. Whether they like it or not, hospital flooring has to be replaced over time. And that means more potential business.
Management has identified geopolitical issues as a potential threat to margins. So this is something to be mindful of.
Source: Fiscal.ai
Fortunately, the dividend’s still covered by earnings. And the firm announced a record interim distribution in its latest update. In other words, the company thinks its challenges are temporary. So should investors think about buying the stock?
UK small-caps
James Halstead’s shares trade on the Alternative Investment Market. That means it doesn’t attract as much attention as its FTSE 100 counterparts.
Looking where others aren’t can be a good way of finding undervalued stocks. But some investors worry that they might stay this way indefinitely.
Unless institutions suddenly start taking an interest, share prices are unlikely to move in a big way. And why would they do that?
With James Halstead however, investors don’t have to worry about this. The dividend provides a return even if the share price doesn’t move.
Given this, I think it’s worth a look. At the very least, a dividend yield at a 10-year high means it’s an opportunity that doesn’t come around often.
Dividends
James Halstead has an outstanding record of dividend growth. And that doesn’t come around by accident.
Institutional investors might not be looking at the stock. But I think it’s well worth checking out for those seeking income.
