A 6.6% dividend yield and 13 years of growth! Is this small-cap FTSE share a buy to consider?
NWF Group‘s (LSE: NWF) a small agricultural outfit that popped up on my radar recently after its dividend yield rose above 6%. The company deals in goods for the farming and grocery industry, supplying animal nutrition, canned food and various oils.
Despite its fledgling £63.2m market-cap, it’s very well-established, having been around for well over 100 years. However, with a yield generally below 6%, it’s flown under my radar — until now.
On Friday (28 November), its share price crashed about 30% after the board warned shareholders that FY results are likely to be below expectations. As a result, its yield rose above 6%, sparking my dividend-tracking alerts.
Naturally, a fall in price doesn’t instill much confidence but it can also be an opportunity to grab some cheap shares.
The question is — are they likely to recover?
A stable, diversified model
The company’s three-pronged diversified model helps reduce risk, as a downturn in one area may be offset by stability in others.
It has large distribution networks for fuel, over a million square feet of warehouse space and substantial feed-mill capacity. Subsequently, it commands a market-leading position with a competitive advantage in scale and infrastructure.
Plus, its longevity demonstrates resilience and adaptability, with all divisions remaining cash-generative and profitable.
Critically, it also has an excellent dividend track record. It’s managed to raise dividends every year for 13 years without fail — even through the pandemic.
Is the dividend sustainable?
An excellent dividend policy is one thing but if it isn’t backed by strong results, there’s the risk of capital declines or a dividend cut.
In NWF Group’s FY 2025 results released in May this year, revenue declined 5% and earnings per share (EPS) dropped from 19.2p to 18.5p. Despite this, it still raised its final dividend from 8.1p to 8.4p. Its return on capital employed (ROCE) also rose 7.4%, which is encouraging.
Unfortunately, one glaring issue I can’t ignore is a 48.5% rise in debt to £53.9m. Add to that a 37% dip in net cash, and dividend sustainability comes into question.
Naturally, the recent trading update doesn’t help matters.
My verdict
With several decades of payments and 13 years of growth, it’s hard to argue against the company’s dedication to shareholder returns. For now, the dividend remains well-covered, giving no reason to expect a cut or reduction.
However, the 37.5% price decline over the past five years equates to an annualised loss of 9.12%. That means, even with the generous dividend, investors have lost out.
From my side, I’d need to see stronger signs of share price recovery before I considered the stock.
For those looking to boost an income portfolio, I think there are more promising high-yield dividend stocks on the London Stock Exchange. Off the top of my head, some good options worth considering this month include Investec, Admiral Group and TP ICAP.
But markets never sleep and things change at the drop of a hat, so I always monitor weekly developments to catch the best opportunities.
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Mark Hartley has positions in Admiral Group Plc and Tp Icap Group Plc. The Motley Fool UK has recommended Admiral Group Plc and Tp Icap Group 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.
