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An enormous dividend yield at all times catches my eye. However there’s one inventory within the FTSE 250 index that’s been grabbing my consideration greater than most.
Monster dividends
The mid-cap in query is high-performance polymer specialist Victrex (LSE: VCT). The merchandise it manufactures are used to switch metals or normal plastics and might stand up to excessive temperatures and aggressive chemical substances. They’re additionally mild and put on extremely properly, therefore their reputation in, to provide simply two examples, the aerospace and automotive industries.
Now, that is truly a inventory I held many moons in the past. On the time, the share worth was appreciating properly. The dividend stream was additionally removed from unattractive. However the yield again then was nowhere close to the place it stands as we speak.
Shares in Victrex at present include a large forecast yield of 8.3% for FY26 (which started initially of October). The common within the index is round 3.4%.
I may also decide up a slice of this firm for rather less than 16 occasions ahead earnings. That’s not screamingly low-cost nevertheless it’s bit decrease than the agency’s five-year common P/E of twenty-two. If the agency prospers, contemplating it now might be a profitable transfer.
Sinking share worth
However maintain on! The dividend yield is so excessive for a purpose. Victrex has been struggling to develop income and revenue for some time. Margins have been squeezed by rising prices too. To additional unsettle issues, CEO Jakob Sigurdsson introduced in July that he intends to retire.
A restoration in fortunes appears a way off. Dealer Jefferies lately lower its score on the inventory attributable to persistent weak point in medical product volumes.
As is likely to be anticipated, none of this has executed the share worth any good in any respect. It’s now down by over a 3rd in 2025 alone, pushing the yield ever upwards.
The efficiency for longer-term buyers has been much more woeful. We’re speaking a few drop of 63% in 5 years!
Pink flags!
Wanting beneath the bonnet, there are a couple of different issues I don’t like.
For one, the full dividend’s been caught at 59.6p for a couple of years now. That’s comprehensible — elevating the payout throughout robust occasions is a dangerous technique for administration.
Nevertheless it’s irritating for current holders and indicative of a enterprise that’s treading water. Name me choosy however I prefer to see dividends rising each (or almost each) 12 months. This 12 months’s payout isn’t even anticipated to be lined by revenue!
I’m not seeing a lot in the way in which of director shopping for both, not less than in 2025. In reality, solely about £30,000 value’s been snapped up.
At occasions like this, buyers would hope to see these within the know exhibiting their confidence and utilizing any spare money to extend their stakes. As a result of issues will bounce again, proper. Hmmm.
Higher alternatives elsewhere
Maybe I’m being too harsh. In contrast to some companies, Victrex’s steadiness sheet appears pretty wholesome. Even so, it’s value noting that this firm went from having a internet money place to a internet debt place in 2023.
However one of many sensible issues concerning the UK inventory market is that there’s no scarcity of (higher) dividend shares on the market. Because of this alone, there’s no hazard of me returning to this laggard on the subject of scratching my passive revenue itch.
