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When the FTSE 100‘s close to an all-time excessive, discovering worth isn’t simple. However that doesn’t imply it’s unimaginable. The truth is, a number of high-yielding UK dividend shares nonetheless look surprisingly low-cost – at the very least on paper.
And one which’s caught my eye currently is the worldwide gross sales, advertising and marketing and assist companies group DCC (LSE: DCC). Now, it’s not a family title like BP or Tesco, but it surely yields just below 5%, has a 13-year streak of dividend progress, and is perhaps severely undervalued — if analyst estimates are something to go by.
What’s happening with the DCC share value?
Final month, DCC introduced plans to dump its IT enterprise, a minor division accounting for simply 1% of working earnings. But traders didn’t take the information nicely. Regardless of elevating $134.9m from the sale, the share value dipped – presumably as a result of the online proceeds have been deemed immaterial.
Nonetheless, the transfer’s a part of a much bigger image. DCC’s simplifying its operations and in Might it kicked off a £110m share buyback programme.
Up to now this 12 months, the shares are down almost 10%. However that’s the place issues begin to get attention-grabbing.
The trailing price-to-earnings (P/E) ratio’s a lofty 22.5. However based mostly on ahead earnings, it falls to only 10.4 – a robust signal that analysts anticipate earnings to bounce again.
The truth is, out of 11 brokers monitoring the inventory, the typical 12-month value goal represents a 31% acquire from at present’s value. The boldest prediction? A 92% upside, with a goal of 9,000p.
That is additional supported by future money stream estimates, which counsel DCC might be 44% under truthful worth proper now.
A top quality dividend inventory?
Even when that bounce by no means comes, the revenue case alone seems compelling. The dividend per share is over £2 and has grown 10% a 12 months for the previous decade. That’s stable, and so is the payout ratio, which stays safely under 100%.
DCC has paid dependable dividends for over 20 years, making it one of the constant dividend shares on the FTSE 100. It’s additionally acquired a robust stability sheet, with £594m in working money stream and 25% extra fairness than debt. Not dangerous in any respect.
What are the dangers?
Not every part’s rosy. Profitability’s on the weak facet, with an working margin of simply 2.56% and return on fairness (ROE) at 6.75%.
Income progress’s down 9.3% 12 months on 12 months, whereas earnings progress’s down 36%. So if upcoming outcomes disappoint, the value may fall even additional.
There’s additionally the lingering risk of tariffs, which prompted Deutsche Financial institution to downgrade the inventory in April on account of world commerce uncertainty.
So is DCC an undervalued gem?
Whereas the valuation seems good, there are clear dangers right here and a restoration isn’t assured. Nonetheless, as a dividend inventory with an extended and dependable revenue observe file, it ticks quite a lot of containers.
Even when the restoration doesn’t arrive, traders are nonetheless paid handsomely to attend. And if it does? All the higher. That makes it a inventory value contemplating in my guide.
