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A giant dividend yield all the time 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 exchange metals or commonplace plastics and might face up to excessive temperatures and aggressive chemical compounds. They’re additionally gentle and put on extremely properly, therefore their reputation in, to offer 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 immediately.
Shares in Victrex at the moment include an enormous forecast yield of 8.3% for FY26 (which started firstly of October). The typical within the index is round 3.4%.
I may choose up a slice of this firm for rather less than 16 instances 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 might be a profitable transfer.
Sinking share value
However maintain on! The dividend yield is so excessive for a motive. 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 reduce its score on the inventory resulting from persistent weak spot in medical product volumes.
As is perhaps anticipated, none of this has accomplished 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!
Crimson flags!
Trying below the bonnet, there are a number of different issues I don’t like.
For one, the overall dividend’s been caught at 59.6p for a number of years now. That’s comprehensible — elevating the payout throughout powerful instances is a dangerous technique for administration.
But it surely’s irritating for current holders and indicative of a enterprise that’s treading water. Name me choosy however I wish to see dividends rising each (or practically each) 12 months. This 12 months’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, at the least in 2025. Actually, solely about £30,000 value’s been snapped up.
At instances like this, traders would hope to see these within the know displaying 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 stability sheet appears pretty wholesome. Even so, it’s value noting that this firm went from having a web money place to a web debt place in 2023.
However one of many good issues in regards to the UK inventory market is that there’s no scarcity of (higher) dividend shares on the market. For that reason alone, there’s no hazard of me returning to this laggard on the subject of scratching my passive earnings itch.
