That means it can be a natural fit for a buy-and-hold investor.so here are three UK shares I think investors should consider for their long-term potential.

Legal & General

The main attraction of Legal & General (LSE: LGEN) as I see it is the financial services firm’s bumper dividend yield.

At 8%, that is indeed attractive, in my view. In fact, that is the highest yield of any FTSE 100 company right now.

The sale of a US business this year means the group may actually shrink rather than grow. I see a risk that could eat into profits.

But underlying business performance remains strong and the firm has proven its excellent cash generation potential. That is supported by its strategic focus, large existing customer base and financial sector expertise.

Hopefully, although payouts are never guaranteed for any share, it can deliver on its plan to keep growing the dividend per share annually.

Aviva

Aviva (LSE: AV) is another FTSE 100 financial services provider that I think merits consideration. Over the past five years, while the Legal & General share price has fallen 3%, by contrast, Aviva’s share price has moved up 47% during that period.

That partly reflects a price recovery following a swingeing 2020 dividend cut by Aviva. Strong dividend growth since that cut means though, that the yield is now a compelling 6.5%.

Insurance is a business that ought to benefit from resilient long-term demand, which I think can fit well with the timeframe of a SIPP.

As the UK market leader in the general insurance market, Aviva can benefit from economies of scale and also the opportunity to try and sell a wider range of products to its large client base.

The UK focus also poses a risk, though. While Aviva still has some overseas footprint, its fortunes are strongly tied to its home market given the size of that business.

That makes it susceptible to smaller rivals trying to compete on price, which is a potential threat to Aviva’s profit margins.

Dunelm

Beyond the FTSE 100, I think investors should consider retailer Dunelm (LSE: DNLM).

Like Aviva, this is a business I expect to benefit from long-term demand. While the housing cycle may mean homeware purchases move up and down, they will not be going away altogether.

A strong buying operation, proven market expertise and lots of unique products help give Dunelm a strong position in this space.

It has managed to turn that into a successful, profitable retail outfit both online and offline that is a generous dividend payer. Currently the FTSE 250 share yields 5.8%.

The Dunelm share price has fallen 38% over the past year. Clearly, weak economic conditions and consumer confidence pose a risk to its sales.

Sales revenues in the first three quarters of its current financial year did actually grow 3%, but that growth has been slowing. The firm expects this year’s pre-tax profit to be at the lower end of analysts’ expectations.

On a price-to-earnings ratio of 11, this looks like a potential long-term bargain to me.

Should you invest £5,000 in Legal & General Group Plc right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Legal & General Group Plc made the list?

Christopher Ruane does not hold any positions in the companies mentioned.

The post 3 shares to consider holding in a SIPP for decades appeared first on The Twelfth Magpie.

And its dividend record is one of the most consistent in the sector, supported by a model that converts sales into free cash with impressive efficiency.

So, what sort of income might investors expect?

How much in dividend returns?

Dunelm’s dividends come in two parts. The first is a regular, steadily rising ‘ordinary’ payout, and the second is a discretionary special dividend. That is only issued if the company’s average net debt over a period consistently falls below the minimum target level of 0.2 × EBITDA.

In recent years, strong cash generation has meant those specials have been frequent and often sizeable, producing very high dividends.

However, because special dividends are never guaranteed and depend entirely on surplus cash, I will focus here on the forecast ordinary dividends.

In this context, analysts forecast ordinary dividends of 46.4p next year, and 48.4p the year after. Based on the current share price of £7.60, these would generate respective dividend yields of 6.1% and 6.4%. Even without special payments, these compared very favourably to the present FTSE 100 average of 3.1%.

What does that mean for second income?

Based on the forecast 6.4% as an average, £20,000 in the stock would make £17,865 in dividends after 10 years. And after 30 years — the end of the standard long-term investment cycle — this would rise to £115,725.

The figures are not guaranteed and also assume that the payouts are reinvested into the stock to capture the full supercharging effect of dividend compounding.

Given these factors, the £20,000 stake would have grown into a holding worth £135,725 at the end of 30 years. And that would pay a yearly second income of £8,686 by that time!

Does the core business support the payouts?

Of course, none of these long‑term income projections matter unless the underlying business can keep generating the cash to support those payouts.

A risk in this context is ongoing pressure on household budgets, which can soften discretionary spending, squeezing Dunelm’s margins. Another is any sustained increase in costs or supply‑chain disruption that could reduce the surplus cash available for dividends.

Nevertheless, analysts forecast that the firm’s profits will rise by an annual average of 4.5%. And it is ultimately growth here that powers any firm’s dividends higher over time.

Its H1 2026 results saw sales up 3.6% year on year to £926.3m, and the gross margin up 2.1% to 40.5%. Free cash flow stayed very strong at £171m (up £2.9m).

Management now expects annual pre-tax profit to be at the higher end of market expectations — £214m (compared to £211m in 2025).

My investment view

Dunelm combines high, well‑covered dividends with a business model that reliably turns steady demand into strong free cash flow.

Long‑term growth drivers — including digital expansion and ongoing efficiency gains — provide a clear runway for profits and dividends to keep rising.

And with yields already far above the wider FTSE average, it is a stock many income investors might want to consider.

I already own several high-yielding shares, and do not need another right now. But it is on my standby list should any of my current stocks fail to keep delivering.

Should you invest £5,000 in Dunelm Group Plc right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Dunelm Group Plc made the list?

Simon Watkins does not hold any positions in the companies mentioned.

The post How much must investors put into this overlooked FTSE dividend star to make an annual second income of £8,686? appeared first on The Twelfth Magpie.

So, if someone decided they wanted to set up passive income streams so they could retire early, what might it take?

First question: what’s the goal?

To start with, it is helpful to figure out what that passive income may need to be.

That depends on an individual’s lifestyle, which can change after retirement. It also depends on how much flexibility they want to build in – for example, keeping a close handle on living costs, or allowing for some extra money in case they decide to splurge.

Another thing to consider is inflation. What makes for a liveable income now may not be enough in 10 or 20 years to maintain the same lifestyle.

In this example, I will use trade body Pensions UK’s ‘moderate’ annual income for one person of £31,700.

Second question: what’s the portfolio yield?

How big a portfolio needs to be to deliver that depends on the average yield obtained.

At the current FTSE 100 yield of 3.1%, £31,700 per year of dividends would require a portfolio worth £1m.

At a higher yield of 5%, that figure would fall to £634,000.

I see 5% as a realistic yield to aim for in today’s stock market while sticking to proven blue-chip shares.

Still, even the best company can disappoint and no dividend is ever guaranteed to last. So it is important to keep the portfolio diversified to aim for the target.

Third question: how soon to retire?

There are quicker and slower ways to hit that target portfolio size.

For example, putting in £1,000 a month, it would take 52 years. That would not help someone retire early!

Putting in £2,000 a month, that falls to 26 years. At £3,000 each month, it would be 17 years.

Things could be sped up by reinvesting (compounding) dividends along the way.

For example, putting in £2,000 per month the goal takes 26 years to hit. But if that £2,000 per month is compounded at 5% annually, it falls to 17 years. That alone could bring retirement almost a decade closer!

Fourth question: what investing platform to use?

Someone needs a practical way to invest in the stock market.

Whether it is a Stocks and Shares ISA, a SIPP or some other platform, keeping a close eye on costs and fees can help when aiming for the goal of building the portfolio size.

Fifth question: which shares to buy?

Building the portfolio also matters.

One dividend share I think investors should consider is homeware retailer Dunelm (LSE: DNLM).

It currently offers a 5.7% yield. Dunelm also has a good track record of paying handsome ordinary dividends and supplementing them with special dividends when it has spare cash.

That is no guarantee of what may happen in future, of course. One risk I see is rising shipping costs leading to higher prices for imported goods. That could hurt Dunelm’s profit margins.

Still, the company is solidly profitable and I expect that to remain the case over the long term.

Demand for homewares is resilient and Dunelm has keen pricing and many unique products. I see it as a share for investors to consider.

Should you invest £5,000 in Dunelm Group Plc right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Dunelm Group Plc made the list?

Christopher Ruane has no position in any of the companes mentioned.

The post How much does someone need to put in the stock market to stop working and live off passive income? appeared first on The Twelfth Magpie.

A crash can actually be a brilliant opportunity for investors who are still working but hope to retire early at some point. 

Why worry about when the crash is coming?

Let me start by saying that I am not suggesting I expect a stock market crash any time soon.

I can see good arguments for why there may be one, but I also see some solid arguments in the other direction. The reality is that nobody knows with certainty when the market will next crash.

Instead, I think a rational investor can work with what we do know.

We know that the market will crash at some point, even if it is not for years. We also know that, based on past experience, such a crash is likely not only to mark down some overpriced shares but also to push some high-quality ones down to an attractive valuation.

Therein lies the opportunity!

Buying quality on sale

To illustrate, let me use an example from the 2020 stock market crash.

There were lots of unknowns at that point – as is common during a stock market crash.

One of those was what a pandemic and lockdowns might mean for retail operations and also consumers’ willingness to spend on their homes.

In February 2020, homewares retailer Dunelm (LSE: DNLM) hit an all-time high.

That was to prove short-lived: in little over a month, the Dunelm share price lost more than half its value. It then more than doubled again by October of the same year.

That recovery reflected changing investor perceptions about what the pandemic would do for homewares demand.

But it also reflected some of Dunelm’s underlying strengths, such as unique products, a good understanding of its shopper base and a retail strategy that aimed to grow digital sales while maintaining a sizeable shop footprint. Those remain true today — and I see them as attractive.

Boosting yield

Currently, Dunelm yields 5.9%.

The share has a strong track record when it comes to dividends – not only ordinary ones, but special ones too, as a way of distributing excess cash.

Last month, for example, it paid an interim dividend of 17p per share. It also paid a special dividend of 25p per share.

Today the Dunelm share price is actually quite close to where it fell to in 2020. Investors now are worried about risks including what the Middle East conflict may mean for shipping costs, as well as product inflation eating into the firm’s margins.

Someone who bought Dunelm in February 2020 would now be yielding around 3.2%. Someone who bought the same share in the crash the following month would be yielding 6.4%.

Compounding a portfolio at 3.2% annually, it would take 23 years to double in value. At 6.4% it would be 11 years quicker.

That helps illustrate how buying a diversified portfolio of good shares at attractive prices during a crash could help someone retire early.

As it happens, even at today’s price, I see Dunelm as a share for investors to consider now.

Should you invest £5,000 in Dunelm Group Plc right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Dunelm Group Plc made the list?

Christopher Ruane has no position in any of the shares mentioned.

The post Here’s how a sudden stock market crash could help you retire early appeared first on The Twelfth Magpie.

Here are three dividend stocks that experts believe deserve a closer look in May 2026.

The income heavyweights

First up is Legal & General (LSE:LGEN). As one of the UK’s largest insurance and asset management groups, it provides a host of retirement and investment management services.

The bull case is straightforward. The stock currently yields 8.7%, backed by nearly two decades of consecutive dividend growth. And several institutional analysts are pointing to Legal & General’s expanding pension risk transfer business as a powerful long-term growth engine as defined benefit schemes continue to offload their liabilities.

However, not everyone is convinced, with some analysts rightfully flagging earnings coverage. With dividends currently running slightly ahead of earnings per share, any unexpected pressure on profitability could force management to reconsider the payout trajectory.

That’s a risk worth watching closely.

Another high-yield income stock to consider is Primary Health Properties (LSE:PHP). This is a specialist tax-efficient REIT that owns and leases primary healthcare facilities as well as GP surgeries across the UK.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

‘Dependable’ is probably one of the best words to describe its dividend, with the healthcare landlord raising shareholder payouts for 28 years in a row, underpinned by long-term leases predominantly funded by the NHS.

However, it’s important to highlight that while renting the majority of its properties to the NHS, the REIT is somewhat captured by its flagship customer.

The UK government has significant negotiating leverage when it comes to renewing leases. And if political priorities shift, budget cuts to certain parts of the NHS could translate into expiring leases not being renewed.

That’s potentially a big problem given that higher interest rates are already putting pressure on cash flows and, in turn, dividends.

A consumer retail dark horse

Another pick from the experts is Dunelm Group (LSE:DNLM) – the UK’s leading homewares retailer, selling everything from bedding and curtains to furniture through its nationwide store network and rapidly growing online channel.

Analysts at Barclays and Berenberg both have Buy ratings, citing Dunelm’s exceptional cash generation and management’s consistent ability to grow market share even in tough consumer environments. The icing on the cake? The board recently declared a special dividend of 25p per share on top of its regular payout.

That’s certainly an encouraging sign for investors looking for a new income stock. However, it’s important to highlight the group’s sensitivity to the British consumer.

If UK household spending comes under renewed pressure from higher taxes or sticky inflation, discretionary homewares purchases are often one of the first things customers cut back on.

The bottom line

These are three very different businesses. But while none are perfect, they are all currently generating strong cash flows that are being used to reward shareholders with impressive yields.

Out of the three, Primary Health Properties looks like it’s the most secure in my eyes. But all three deserve a closer look. So, for income-focused investors hunting for a quality stock to buy this month, these might be worth mulling over.

The post 3 top income-focused stocks to buy in May 2026, according to experts appeared first on The Twelfth Magpie.

In fact I think that learning from Buffett’s approach can be very helpful at a time like now, when looking to build wealth.

Start with a simple question

To begin, forget about the stock market altogether. Instead, think about a business you know and understand. Warren Buffett always tries to stick to businesses he understands.

Ask yourself what chance that business has to succeed over the long term.

How big is its target market, what competitive advantages does it have – and are they likely to endure?

Then consider its economic model. Sometimes a big business with massive sales can still lose money, so understanding a business model matters.

That process is how Buffett determines whether a firm is the sort of great business he would like to own.

Valuation is key to successful investing

But Buffett does not just talk about great businesses. He talks about buying into great businesses at attractive prices.

That is a crucial distinction. Even a brilliant business can make a lousy investment if someone pays too much for their stake in it.

Turbulent markets generally do not alarm the Oracle of Omaha. If the underlying value of a business whose shares he owns as a long-term investor remains the same, he does not care if the stock market values them lower during a period of volatility.

But such periods – like the one we are in now – can offer the savvy long-term investor an opportunity, if they enable them to buy into a great business for an unusually attractive price.

A share to consider

As an example, one share I think investors should consider is homewares retailer Dunelm (LSE: DNLM).

The Dunelm share price has crashed 29% since the start of the year. That means it now sells for just 11 times earnings, while offering a dividend yield of 5.7%.

In fact, although payouts are never guaranteed, the prospective yield over the medium- to long-term could be higher, as Dunelm often uses surplus cash to fund special dividends.

Why the share price fall?

Weak consumer confidence and an uncertain outlook for the property market threaten to eat into demand for homewares. Higher logistics costs due to soaring oil prices could make imports costlier for Dunelm, eating into profits. Last month the company told investors that, “the consumer environment remains challenging, with variable trading patterns”.

I see those as temporary challenges, though. Like Warren Buffett, though, I take the long-term approach to investing.

People will keep buying homewares, even though demand may wax and wane across the economic cycle. Dunelm has a proven, profitable business model.

Its many unique product lines help give it a competitive advantage, as do its brand and large estate of shops. At its current price, I see it as a potential long-term bargain — alongside some other shares in the current market!

The post As the stock market moves down, I’m taking the Warren Buffett approach! appeared first on The Twelfth Magpie.

Its vertically-integrated model gives it pricing power and margins that rivals struggle to match, reinforcing a genuine competitive advantage.

Trading has stayed resilient, supported by loyal customers and a value‑quality proposition that continues to outperform the wider homewares market.

So, with the shares looking modestly priced against this operational strength, where ‘should’ they be trading?

Growth momentum intact after H1 results?

Dunelm’s recent H1 fiscal-year 2026 results showed earnings dipping year on year, with profit before tax down 7.5% to £114m. This reflected softer trading over the period, in line with still-major cost-of-living pressures across the UK.  

Even so, the business continued to grow ahead of the wider homewares market. This was supported by rising sales (up 3.6% year on year to £926.3m), increased gross margin (up 2.1% to 40.5%), and broadly stable pricing.

Free cash flow remained exceptionally strong at £171m (up £2.9m), underlining the resilience of the model even against a tougher consumer backdrop.

Management now expects annual pre-tax profit to be at the higher end of market expectations — £214m (compared to £211m in 2025).

A risk remains that cost-of-living pressures will continue to weigh on the firm. However, I think the foundations are in place for earnings to recover as cost pressures ease and digital momentum continues. Analysts’ consensus forecasts reflect the same view, expecting Dunelm’s earnings to grow at an average 5.8% a year to end-2028.

Where ‘should’ the shares be priced?

A discounted cash flow (DCF) approach gives a clear, standalone picture of Dunelm’s underlying value, unaffected by over- or undervaluations across the sector as a whole.

It identifies a company’s ‘fair value’ by projecting its future cash flows and then discounting them back to today. Dunelm converts a very high proportion of earnings into free cash flow. And its steady mid‑single-digit growth outlook provides a solid foundation for such long-term modelling.

Analysts’ DCF modelling varies — some more cautious than mine — depending on the variables used. However, based on my DCF assumptions — including a 9% discount rate — Dunelm shares are 19% undervalued at their current £9.80 price.

This implies a fair value of £12.10.

The gap between the company’s current share price and its fair value is very important for long-term investors. This is because asset prices (including shares) tend to trade to their fair value over time.

My investment view

Overall, for long-term investors, I believe Dunelm offers a rare combination of quality, resilience and value.

The business continues to generate strong cash flows, even in a tougher consumer environment. And its disciplined approach to pricing and promotions supports both margins and customer loyalty.

With the shares trading around 19% below my estimate of fair value, I think the market has failed to properly price these factors in. But I think this will change, as Dunelm continues to demonstrate consistently robust earnings growth.

The dividend outlook adds an extra layer of appeal, with analysts expecting a yield of around 5% by 2028. This is unusually high for a retailer with this level of operational strength.

Taken together, I see Dunelm as a compelling opportunity to consider for investors seeking dependable long-term returns at a sensible price.

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Now, past performance is not necessarily indicative of what may happen in future. But here is a trio of UK stocks I think could potentially grow their dividends regularly in years to come.

Phoenix Group

The insurer Phoenix Group (LSE: PHNX) isn’t a household name, though with its planned name change to Standard Life, that may change.

Well-informed investors are clued in about the company’s 7.6% dividend yield, the highest of any FTSE 100 firm apart from Legal & General.

Like Legal & General, Phoenix aims to grow its dividend per share annually. It has done so over the past few years.

The financial service business is focussed on savings and retirement. With around 12m customers, it is a very substantial company.

It’s also strongly cash generative, helping to underpin the dividend. Phoenix’s businesses benefit from economies of scale, long-term policies being in place, and proven investment nous.

One risk I see is a property downturn forcing Phoenix to write down the value of its mortgage book. On balance, though, I see it as a UK stock for investors to conider.

Cranswick

Another name that’s unlikely to trip off most people’s lips is Cranswick (LSE: CWK).

But while many people might be unfamiliar with the FTSE 250 food company, some of its products may well have passed their lips. Cranswick’s customer list includes swathes of the country’s retailers, who sell its products under their own names.

Demand’s likely to stay high: people need to eat and Cranswick has developed competitive pricing and economies of scale.

Economies of scale are not always positive, though. Allegations last year of cruelty at some of the company’s large pig farms brought a reputational risk. I was therefore pleased to see the company commission an independent review into how it treats its swine and act on it.

Cranswick has grown its dividend per share for 35 years in a row.

The dividend last year was covered more than twice over by diluted earnings per share. With strong business performance, I think it could keep growing.

But at 18 times earnings, the Cranswick share price is not tasty enough right now for me to add the 2%-yielder to my portfolio.

Dunelm

It has not been a good month for homewares retailer Dunelm (LSE: DNLM). Its share price has tumbled 15% since the turn of the year.

That leaves it 19% below where it stood five years ago. At today’s price, I think investors should now consider this UK stock.

The share price fall was due in part to a profit warning this month. There are risks that weak consumer spending could eat into demand for some of Dunelm’s product lines, hurting revenues and profits.

But I see this as a well-run business with a strong positioning in the market. It has proven its model through multiple economic cycles. I expect it can continue to generate significant cash flows.

The company’s special dividend has moved around. But its ordinary dividend per share has kept growing annually in recent years.

I see the business as strong enough to maintain that trend. The ordinary dividends alone currently offer a 4.7% yield.

The post 3 UK income stocks I think could keep growing their dividends appeared first on The Twelfth Magpie.

That said, the trade-off is often volatility, which makes it vital to look carefully at dividend policies, payout ratios and long-term profitability.

When it comes to dividends, many investors prefer a history of consistent payments backed by strong financials. A high yield can look tempting, but without reliable earnings, it may not be sustainable. And that brings me to one lesser-known mid-cap company that caught my attention this week.

Dunelm’s impressive numbers

Dunelm Group‘s (LSE: DNLM) a well-known homewares retailer, selling everything from bedding and bathroom wares to rugs, curtains and furniture. It operates through physical stores, catalogues and its growing online presence. The company’s dividend yield is an eye-catching 7.2%, among the top 30 on the index.

The number that really jumps off the page though, is return on equity (ROE). At 121.78%, Dunelm boasts the highest figure across the entire FTSE 250. ROE measures how effectively a company generates profit from shareholders’ equity and, at first glance, this suggests the business is incredibly profitable.

Combined with a dividend track record that includes five years of uninterrupted payments and two consecutive years of growth, Dunelm certainly looks worth considering.

But as always, I think it’s important to dig beneath the surface.

The risks behind the rewards

While Dunelm’s ROE figure’s impressive, it doesn’t tell the full story. The company’s net margin is just 8.83%, and its free cash flow margin stands at 12.28%. These aren’t disastrous numbers, but they don’t suggest a business overflowing with profitability either.

More concerning is the dividend payout ratio, which is slightly above 100%. That means dividends aren’t fully covered by earnings, raising questions about sustainability if profits don’t keep up.

Then there’s the matter of debt. Dunelm has £377.7m in total debt compared with just £118m in equity. That imbalance is significant. Revenue and earnings are forecast to rise modestly in 2026, but there’s no certainty that those expectations will be met.

If equity weakens further, the company could find itself under pressure to service its obligations. And that raises the real risk of a dividend cut.

In fact, I can’t help but think that Dunelm’s huge ROE figure may be flattered by its financial leverage. High debt levels can artificially boost ROE, making a business look more profitable than it truly is. But if earnings stumble, leverage works in reverse – magnifying losses and potentially putting the balance sheet under serious strain.

My verdict

Dunelm has an attractive yield, a recognisable brand and a dividend history that income investors might find encouraging. But with dividends not fully covered and debt levels sitting uncomfortably high, I think it’s one that investors need to weigh up very carefully.

For those willing to consider risk, Dunelm could still find a place in a diversified dividend portfolio. But without stronger earnings growth, its financial leverage may prove more of a burden than a benefit.

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Correctly identifying and quantifying the price-value gap is where sustained big profits lie over time, in my experience. This comprises several years as a senior investment bank trader and decades as a private investor.

The second factor is whether it pays an enticing yield, which to me is 7%-plus. Why this number? It is because the ‘risk-free rate’ – the 10-year UK government bond yield – is around 4.6%, and shares are not risk-free.

And the final element is strong earnings growth prospects. It is these that drive gains in any firm’s share price and dividends going forward. The baseline number I want to see here is also 7%+ right now.

Why? Because otherwise the management might as well sell all the firm’s assets and investment in the UK 10-year or 30-year government bonds. The 30-year paper currently yields 5.5%.

How does this firm stack up?

On the positive side, Dunelm (LSE: DNLM) shares generate a current dividend yield of 7.5%, which meets that criterion for me. This includes a special dividend last year, but it has been paying a special dividend every year since 2021.

On the share price, a discounted cash flow analysis shows it is 22% undervalued at the current £10.66. This modelling highlights where any stock should trade, derived from cash flow forecasts for the underlying business.

Therefore, in Dunelm’s case, the fair value of its stock is £13.67. This does not meet my requirements on this criterion.

Finally, on earnings growth prospects, analysts’ forecast 5.1% a year to end fiscal-year 2027/28. Again, this falls short of my requirement here. So the stock is not currently for me, but it could be in the future. This is based on positives I see in its results.

Solid annual results

Dunelm spelt out its key current business risks in its 9 September fiscal-year 2024/25. It said: “We are yet to see signs of a wider consumer recovery, and consumer confidence has remained lacklustre”. These are clear risks for the firm’s earnings outlook and indeed for many firms in the retail sector. But following this, its share price fell 10% on the day.

However, the market reaction failed to reflect either the preceding or subsequent sentence in the results. The former was that Dunelm was reporting another successful year. The latter was that it will continue to raise the bar on its products and the proposition it offers.

On the former, total sales rose 3.8% year on year to £1.771bn, while profit before tax increased 2.7% to £211m.

While on the latter, the firm has put into action growth plans across three strategic pillars. These include elevating its product offer, connecting to more customers and finding more ways to harness its operational capabilities. Together, these aim to extend the firm’s position as a multi-channel, multi-category specialist.

Consequently, although it is not for me right now, I think it may be worth considering by others whose portfolios it suits.

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