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Dividend investing has all the time been a balancing act. On the one hand, rising share costs are a welcome signal of confidence out there. On the opposite, they’ll strip previously enticing FTSE shares of their once-generous yields. Many well-liked dividend names now look stretched, leaving earnings buyers looking for options.
British American Tobacco is an effective instance. As soon as thought of a dividend darling, its yield has now slipped beneath 6% whereas its price-to-earnings (P/E) ratio has ballooned above 28. That appears costly for a enterprise nonetheless wrestling with declining cigarette demand and regulatory hurdles.
Property shares have been an alternative choice, with companies like Major Well being Properties providing a near-8% yield. However a weak housing market has pressured income and, extra worryingly, dividends aren’t well-covered. That raises the potential for cuts at exactly the time earnings buyers are counting on them most.
Amongst this mixture of overvalued blue-chips and shaky property shares, one lesser-known FTSE share has caught my consideration. It combines an affordable valuation with a dependable, well-covered dividend that appears price trying out.
Trendy advertising
Subsequent 15 Group (LSE: NFG) isn’t a family title, but it surely’s been round for greater than 40 years. The corporate is a model development company providing digital content material, advertising, PR, software program, analysis and communications. Its decentralised mannequin is pitched as “tech-led, digital-first and data-voracious,” however beneath the jargon is an easy concept: a nimble advertising enterprise that claims it could possibly adapt quicker than bigger rivals in an AI-driven world.
The problem is that its share value hasn’t mirrored that promise. In late September 2024, the inventory crashed by round 50% after dropping one among its largest purchasers, which selected to not renew a three-year contract. That shook investor confidence, and even as we speak, the share value stays down 41.9% over the previous 5 years.
On the flip aspect, the decline has created worth. Subsequent 15 now trades on a ahead P/E ratio of simply 6.55, which seems to be low cost in comparison with different FTSE-listed advertising and tech companies. The dividend yield sits at 5.4%, not the best available on the market however definitely respectable. Extra importantly, it’s supported by a payout ratio of solely 39% and backed by over twenty years of constant funds.
For earnings seekers, that makes it a inventory price fascinated with.
Subsequent 15 isn’t in excellent well being. Earnings dropped sharply between H2 2023 and H2 2024, falling from £38.64m to £17.33m. Debt can be climbing, now at £150m – greater than double its free money move. Which means if income don’t stabilise quickly, strain might mount on the stability sheet.
Nonetheless, the agency stays impressively worthwhile, with a return on fairness (ROE) of 23.4%. Debt is roofed by fairness, and with £50m in money and equivalents, it has some respiratory area. The dividend, a minimum of for now, seems to be well-supported.
My verdict
This isn’t a risk-free play. Competitors in advertising and model administration is intense, and Subsequent 15 should exhibit its capacity to combine AI successfully whereas sustaining margins. However in a market the place many FTSE shares now look overvalued or stretched, I believe it’s one to weigh up.
The yield is roofed, the valuation is enticing, and the lengthy fee monitor document is reassuring. For these constructing a diversified earnings portfolio, it’s a FTSE share price contemplating.
