“Given how well the company is run and how solidly it is financed, it is going to take something extraordinary to break James Halstead’s phenomenal run of increases in its dividend and – so far – even a global pandemic is failing to snap the growth streak,” says Russ Mould, AJ Bell Investment Director. “The AIM-quoted floorings expert may have trimmed back its interim payment to 2.125p a share from 4p in March but if followed up with a second interim payment of 2.125p in summer and has now declared an unchanged final dividend of 10p, for a 14.25p total, a fraction above last year’s 14p.
Source: Company accounts
“The latest increase in the dividend extends a streak which stretches back to 1977 and is a testament to Halstead’s solid finances. The balance sheet shows £67.4 million of cash and no debt, with lease obligations of £5.9 million and a pension liability of £23.2 million, for a net cash position of £38.3 million. That is marginally higher than it was at the first-half stage, despite the disruption suffered by the business between April and June, thanks to the pandemic and a global downturn.
“In addition, the company remains very profitable. Annual sales dipped by 6% and pre-tax profit by 9%. Meanwhile, the first-half was very profitable, with an operating return on sales of 18.5%, and cash conversion was good, as James Halstead turned an operating profit of £44 million into post-tax free cash flow of £30 million.
“That nearly covers £3 million in lease payments, a £4 million contribution to the pension fund and the £25 million dividend, although the key word here is nearly. Trading understandably dipped in the second half and the economic outlook remains uncertain, with retail and hospitality as big end markets, even if the NHS is a key customer too.
“This is presumably why James Halstead is still treading carefully when it comes to the dividend, as profits and cash flow could still come under pressure this year if the global economy recovers slowly or dips again. The 1.8% hike in the annual dividend was the smallest percentage increase since the growth streak began in 1977.
“The 14.25p-a-share dividend equates to an annual, historic yield of 2.9%. That might not leap off the page at income hunters, but the secret to the investment case for James Halstead has been dividend growth.
“The share price was 0.29p when the dividend growth streak began in 1977, so a 14.25p payment on that in price looks unbelievable now. A consistently rising dividend will tend to drag a share price higher over time and provide the combination of income and capital growth.”
