What’s best, a dividend share with a nice fat yield? Or a share price that brokers predict will climb? With downtrodden FTSE 250 stock Victrex (LSE: VCT), we might just have both.
That potential 40% gain represents the top end of the current analyst price target range. At the other end, there’s a naysayer expecting a 5.5% fall. And the average of the most recent updates suggests a rise of around 20%. Targets like these can vary widely — but the balance does appear optimistic.
Fantastic plastic
Victrex makes something called PEEK. It’s a highly-durable polymer, used for all sorts of industrial applications where it can replace heavier metals. It’s also has niches in medical applications, and a whole host of other areas.
Patents on the material itself have expired. But it’s very hard to make, and competitors trying it from scratch face no easy task. Does that mean there’s a bit of a defensive moat? It looks that way.
But the chart above makes it seem clear that something has seriously gone wrong.
Trouble in China
The reason for the high potential dividend yield is clear — the share price has slumped 75% in the past five years. But why?
In 2024, Victrex opened a manufacturing plant at Panjin in China. But it’s been hit by technical problems that sound very expensive to fix. And that led to a £60.6m impairment charge… and a whopping £44m loss before tax for the first half of the current year.
Forecasters expect a sizeable loss for the full year too, and a jump in net debt to £43m.
Things can only get…?
On an underlying basis, however, the company expects profit before tax of £42m to £44m. At H1 time, new CEO Dr James Routh told us…
Our Profit Improvement Plan is on track for some early benefits at the end of FY 2026, with full year savings of at least £10m in FY 2027 … Overall, our growth opportunities remain strong across a broad range of end markets and geographies.
— H1 results, 11 May 2026
Analysts expect reported profit in 2027 to put the shares on a price-to-earnings (P/E) ratio of 13.5… dropping to 11.8 in 2028.
Potential pitfall
For me, there’s a big red flag. I don’t like a dividend share that isn’t backed by earnings cover. And this was hammered home when the company said…
The Group has continued to utilise the UK revolving credit facility (RCF) to support payment of the final dividend, which we anticipate will be fully repaid by 30 September 2026. We completed funding for a £20m term loan in H1 2026 to reduce reliance on the RCF.
Borrowing specifically to pay dividends? Eek! Forecasts don’t see earnings covering the dividend before 2029. So what should investors do?
Tempting, but…
If Victrex can keep the dividend going until it returns to sufficient cover by earnings, this could turn into a nice little dividend-plus-growth earner. And bold investors might do well to consider buying now, before the corner is turned.
What about me? I’m getting too old to be that bold.
Should you invest £5,000 in Victrex Plc right now?
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Alan Oscroft does not hold any positions in the companies mentioned.
