Down 25%, this undervalued FTSE share boasts a reliable, well-covered dividend yielding 5.4%
Dividend investing has always been a balancing act. On the one hand, rising share prices are a welcome sign of confidence in the market. On the other, they can strip formerly attractive FTSE shares of their once-generous yields. Many popular dividend names now look stretched, leaving income investors in search of alternatives.
British American Tobacco is a good example. Once considered a dividend darling, its yield has now slipped below 6% while its price-to-earnings (P/E) ratio has ballooned above 28. That looks expensive for a business still wrestling with declining cigarette demand and regulatory hurdles.
Property stocks have been another option, with firms like Primary Health Properties offering a near-8% yield. But a weak housing market has pressured profits and, more worryingly, dividends arenât well-covered. That raises the possibility of cuts at precisely the time income investors are relying on them most.
Among this mix of overvalued blue-chips and shaky property stocks, one lesser-known FTSE share has caught my attention. It combines a reasonable valuation with a reliable, well-covered dividend that looks worth checking out.
Modern marketing
Next 15 Group (LSE: NFG) isnât a household name, but itâs been around for more than 40 years. The company is a brand growth agency offering digital content, marketing, PR, software, research and communications. Its decentralised model is pitched as âtech-led, digital-first and data-voracious,â but underneath the jargon is a simple idea: a nimble marketing business that claims it can adapt faster than larger rivals in an AI-driven world.
The challenge is that its share price hasnât reflected that promise. In late September 2024, the stock crashed by around 50% after losing one of its largest clients, which chose not to renew a three-year contract. That shook investor confidence, and even today, the share price remains down 41.9% over the past five years.
On the flip side, the decline has created value. Next 15 now trades on a forward P/E ratio of just 6.55, which looks cheap compared to other FTSE-listed marketing and tech firms. The dividend yield sits at 5.4%, not the highest on the market but certainly respectable. More importantly, itâs supported by a payout ratio of only 39% and backed by over two decades of consistent payments.
For income seekers, that makes it a stock worth thinking about.
Financial footing
Next 15 isnât in perfect health. Earnings dropped sharply between H2 2023 and H2 2024, falling from £38.64m to £17.33m. Debt is also climbing, now at £150m â more than double its free cash flow. That means if profits donât stabilise soon, pressure could mount on the balance sheet.
Still, the firm remains impressively profitable, with a return on equity (ROE) of 23.4%. Debt is covered by equity, and with £50m in cash and equivalents, it has some breathing space. The dividend, at least for now, looks well-supported.
My verdict
This isnât a risk-free play. Competition in marketing and brand management is intense, and Next 15 must demonstrate its ability to integrate AI effectively while maintaining margins. But in a market where many FTSE shares now look overvalued or stretched, I think itâs one to weigh up.
The yield is covered, the valuation is attractive, and the long payment track record is reassuring. For those building a diversified income portfolio, itâs a FTSE share worth considering.
The post Down 25%, this undervalued FTSE share boasts a reliable, well-covered dividend yielding 5.4% appeared first on The Motley Fool UK.
Should you invest £1,000 in Next 15 Group Plc right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Next 15 Group Plc made the list?
More reading
- Trading around a 10-year high, is Lloyds share price overpriced against âfair valueâ now?
- 2 top UK growth stocks analysts say investors should buy in October
- Could buying NIO stock at $7 be like investing in Tesla in 2015?
- Will the stock market crash in October?
- Just released: September’s lower-risk, higher-yield Share Advisor recommendation [PREMIUM PICKS]
Mark Hartley has positions in British American Tobacco P.l.c. and Primary Health Properties Plc. The Motley Fool UK has recommended British American Tobacco P.l.c., Next 15 Group Plc, and Primary Health Properties Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
