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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 interchange metals or commonplace plastics and might stand up to excessive temperatures and aggressive chemical substances. They’re additionally mild and put on extremely properly, therefore their recognition 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 value was appreciating properly. The dividend stream was additionally removed from unattractive. However the yield again then was nowhere close to the place it stands at this time.
Shares in Victrex at the moment include a large forecast yield of 8.3% for FY26 (which started firstly of October). The typical within the index is round 3.4%.
I can even decide up a slice of this firm for rather less than 16 occasions ahead earnings. That’s not screamingly low cost however it’s a superb bit decrease than the agency’s five-year common P/E of twenty-two. If the agency prospers, contemplating it now may very well be a profitable transfer.
Sinking share value
However maintain on! The dividend yield is so excessive for a cause. 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 minimize its score on the inventory because of persistent weak spot in medical product volumes.
As could be anticipated, none of this has executed the share value 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 traders has been much more woeful. We’re speaking a couple of drop of 63% in 5 years!
Pink flags!
Trying underneath the bonnet, there are a number of different issues I don’t like.
For one, the whole dividend’s been caught at 59.6p for a number 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) yr. This yr’s payout isn’t even anticipated to be coated by revenue!
I’m not seeing a lot in the best way of director shopping for both, a minimum of in 2025. In reality, solely about £30,000 price’s been snapped up.
At occasions like this, traders 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. Against this to some companies, Victrex’s stability sheet appears pretty wholesome. Even so, it’s price noting that this firm went from having a internet money place to a internet debt place in 2023.
However one of many sensible issues in regards to 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 relating to scratching my passive revenue itch.
