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Penny inventory firms have a popularity for draining their coffers simply to remain afloat, so it’s at all times a shock to identify one flaunting a fats dividend. Enter Oxford Metrics (LSE: OMG), an analytics firm value simply £50m that’s flipping the script.
It’s a small however complicated enterprise, designing and manufacturing superior sensing units and clever software program options to measure motion and handle infrastructure. It caters to worldwide prospects in sectors like life sciences, leisure, engineering and sensible manufacturing.
On the time of writing, it presents a whopping 7.5% dividend yield, with the shares altering palms for simply 44p apiece. It’s in all probability the most affordable high-yielding dividend inventory on the UK market proper now.
So, if an investor had been to snap up 50,000 shares for £22,000, they’d be pocketing £1,650 in dividends annually. After all, that’s assuming the yield doesn’t vanish in a single day. Penny shares aren’t precisely famend for predictable returns. If the share worth tanks, the dividends gained’t be a lot comfort.
That begs an apparent query – is Oxford Metrics a real alternative for passive revenue hunters, or is it simply one other worth entice ready for the following unsuspecting investor?
Crunching the numbers
Oxford Metrics pays out 3p per share in dividends, which actually grabs consideration for any investor weighing up revenue choices within the penny inventory universe.
In its newest outcomes, although, the story took a darker flip: the corporate reported a £1.94m loss, regardless of reeling in £38m in income. Worryingly, money circulation lined solely 67% of the dividend payouts, which means Oxford Metrics really lacks each the earnings and money wanted to pay these juicy dividends. It may need to borrow or depend on additional financing to maintain up the funds.
Nonetheless, its observe file is spectacular. It’s coughed up dividends persistently for 19 years and managed to hike payouts for 4 years working. That reliability makes me assume it’s in all probability obtained a back-up plan for powerful occasions.
The share worth bounced up 10% this month, however zoom out and it’s nonetheless 40% decrease over the previous 5 years. Even after the drop, it doesn’t look a lot of a cut price, sporting a ahead price-to-earnings (P/E) ratio of 16.5.
The info paint a combined image: a beneficiant yield and powerful dividend file, however precise earnings have crashed by 151% yr on yr. That’s sufficient to make me cautious about counting on future payouts. When dividend cowl will get this skinny, a minimize can’t be dominated out, which implies it’s one for my watchlist moderately than interested by shopping for for the time being.
One other instance to contemplate
For these eager on small-cap dividend shares, it could be value contemplating the development supplies provider Brickability Group as an alternative. This £180m inventory presents a 6.3% yield with a six-year dividend file. Its payout ratio is a bit dangerous at 172%, however money covers the dividends thrice over.
Plus, the corporate is worthwhile and appears attractively priced, buying and selling on a ahead P/E ratio of simply 6.5.
When traders scout out dividend shares, it’s important to weigh up each angle – not simply the yield on show. In any other case, there’s at all times a threat of getting caught with overvalued shares in an organization that’s simply slashed its dividend.
