A high-yield dividend stock near its 5-year low to consider buying right now

Long-term dividend stock James Halstead (LSE: JHD) fell to a five-year low in April. It bounced back quite quickly, but now it’s sliding again and is only around 10% up from that April bottom — and down 18% year to date.

The forecast dividend yield is now up at 6.1%. And this is a company that prides itself in having raised its annual dividends for 49 years in a row. What’s in store for income investors now?

Floor coverings

The company makes commercial and domestic floor coverings. That business has been under revenue pressure for the last few years — contributing to the share price fall since a high in early 2022.

The year ended June 2024 saw revenue drop 9.4%. And while headline profit before tax rose 7.9%, bottom-line earnings per share (EPS) fell 2%. By the interim stage of the 2024/25 year, revenue dipped a little but EPS gained 4%. It’s a bit swings-and-roundabouts.

We probably won’t have full-year results to June 2025 for another month or so. But a July trading update effectively turned into a mild profit warning, and that’s what sent the shares down on their current decline.

After sales fell in the UK the previous year, the update told us “our performance this year has seen this decline more than fully reverse“. But despite that, the company said “our internal expectations for the UK were higher“. It added “An anticipated uplift in demand in the education, healthcare and the prison sectors has not, yet, materialised“.

Business disruption

We also heard of “disruption to global trade routes and shipping movements with the uncertainty of tariffs on sales into the USA which has affected deliveries into many markets“. That’s a familiar tale this year. But at least for James Halstead there was a silver lining — a competitive advantage in the US compared to suppliers from other countries facing higher tariffs.

The big question is whether to take advantage of the price dip and consider buying, or wait and see if the business picks up in the longer term.

The crux for me is all down to the dividend. Cover by forecast earnings this year is looking a bit thin at only around 1.1 times. I also see a risk the payout might not be covered by free cash flow. So the company could have to draw on its cash resources if it wants to keep its progressive rises going. If it doesn’t, I could see a share price slump.

Next few years

That’s just this year. And I reckon we could have another two or three years of relatively weak trade in this business. Amid rising prices and an uncertain economic outlook, flooring is the kind of spend that can be shelved relatively easily in favour of higher priorities.

Still, James Halstead had Â£63.7m cash at the halfway stage. And I expect it will surely prioritise that 49-year tradition of raising dividends. Investors who agree could do well to consider buying while the price is down, and lock in higher effective yields.

The post A high-yield dividend stock near its 5-year low to consider buying right now appeared first on The Motley Fool UK.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.