New stock #2: 20 years of dividend growth & a 6% yield
In this piece I'm going to introduce the second new stock I am adding to my portfolio at the end of September. This timing maintains the quarterly trading schedule I've followed since launching the model portfolio at the end of 2021.
The company I discuss in this article is listed on London's AIM market and was founded more than 100 years ago. It boasts 20 years of unbroken dividend growth and a forecast dividend yield of just over 6%.
This business has fallen out of favour with investors over the last year and its shares now trade at a deep discount to their book value.
In part, I think this de-rating has been justified by external pressures on profits.
However, I think negative market sentiment is also a factor here. Many AIM stocks and UK small caps are out of favour at the moment – including some better quality businesses than this one.
The underlying reasons for this malaise include a general lack of interest in UK small caps, plus some specific concerns about potential changes UK tax policy in the Autumn Budget.
I don't know what will happen in the budget. If AIM IHT relief is scrapped, many City figures believe AIM stocks could take a bath.
On a medium-term view, however, I think the underlying business here looks solid and the value of its equity should be supported by its balance sheet.
In my view, the shares have attractive recovery potential from current levels.
In the meantime, the 6% yield looks fairly safe to me, given support from the strong, net cash balance sheet.
Read on to find out more about this business, and why I've decided to add the shares to my portfolio.