James Halstead extends dividend growth streak to 44 years

Russ Mould
4 October 2021

“The pandemic couldn’t knock flooring specialist James Halstead off its stride and now investors will be waiting to see how the Bury-based company tackles raw material shortages and rising input costs but the latest dividend increase suggests management has every confidence it will come out on top,” says AJ Bell investment director Russ Mould. “After carefully matching the interim dividend, James Halstead has increased its full-year payment by 10% to 11p a share. That represents a new all-time high and extends a growth streak in the total dividend payment that dates back to 1977.

Source: Company accounts. Financial year to June.

“Management is also considering a one-for-one bonus issue of shares to investors. While this will not impact any shareholder’s actual stake in the company, or their percentage claim on its assets and cash flow, it could boost liquidity in the stock. James Halstead has a history of such bonus issues, having undertaken the same exercise in 1973, 2002, 2005, 2010 and 2013.

“The track record of dividend growth is a testament to Halstead’s solid finances. The balance sheet shows £83.3 million of cash and no debt, with lease obligations of £6.2 million and a pension liability of £4.4 million, for a net cash position of £72.7 million.

“In addition, the company remains very profitable.

“Full-year sales rose 12% (after a flat first half) came in broadly flat and operating profit rose 17%, to give an operating return on sales of 19.4% (although this meant a slight dip in the second half). Cash conversion was good, too, as James Halstead turned £51.8 million of operating profit into free cash flow of £53.2 million, after tax and capital investment, helped by some welcome inflows from net working capital.

“That nearly covers £3 million in lease payments, £4 million in pension contributions and £34 million in dividend payment for the year with room to spare. Granted, the working capital inflow may not be sustainable, the economic outlook remains uncertain, and raw material availability is an issue that will not resolve itself overnight.

“James Halstead continues to work with its suppliers, where there are in many cases mutually fruitful longstanding relationships, and the company is taking on both extra inventory and extra staff on the shop floor to ensure smooth running of the factories in Bury and Teesside. These measures could soak up some cash and increase costs, at least in the short term.

“Nevertheless, the latest dividend hike speaks of confidence in the recovery and the company’s competitive position.

“And while a 15.25p-a-share dividend equates to an annual, historic yield of just 2.8%, a figure which might not immediately catch the eye of income-seekers, 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 15.25p payment on that in price looks truly amazing now. A consistently rising dividend will tend to drag a share price higher over time and provide the portfolio-boosting combination of income and capital growth.”

Source: Company accounts. Financial year to June.

Russ Mould
Investment Director

Russ Mould’s long experience of the capital markets began in 1991 when he became a Fund Manager at a leading provider of life insurance, pensions and asset management services. In 1993, he joined a prestigious investment bank, working as an Equity Analyst covering the technology sector for 12 years. Russ eventually joined Shares magazine in November 2005 as Technology Correspondent and became Editor of the magazine in July 2008. Following the acquisition of Shares' parent company, MSM Media, by AJ Bell Group, he was appointed as AJ Bell’s Investment Director in summer 2013.

Contact details

Mobile: 07710 356 331
Email: russ.mould@ajbell.co.uk

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