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I like a good dividend share as much as the next investor and lately I have been stocking up on one in particular, buying it repeatedly for my portfolio.
After a recent price tumble – it is down 31% so far this year – the share now yields 6%.
Not only that, but it often pays a special dividend on top of the ordinary dividend, pushing the total yield up further.
Well-known, profitable business
The share in question is FTSE 250 homewares retailer Dunelm (LSE: DNLM).
Dunelm has a business model that it has proven over decades. In its most recent financial year, it generated revenue of £1.8bn and made a profit before tax of £211m. That more than covered the £141m it spent on dividends in the period.
It already has a large shop estate, while 42% of its sales are now digital. The chain recently announced plans to open more shops, streamline its product offering and focus more on offering products carrying its own brand.
I think those moves could help boost revenues and profit margins.
Dividends – and more dividends
Dunelm has been growing its ordinary dividend per share annually in recent years.
That growth has been fairly modest, with the latest increase coming in at 2.2%.
Still, dividend growth is dividend growth and the share now yields the aforementioned chunky 6%.
But when investors talk about yield, the figure often only includes ordinary dividends. That is the case here. Yet Dunelm has pretty consistently also paid out a special dividend using spare cash.
At 25p per share, the special dividend last year was smaller than the prior year’s 35p. Still, with the Dunelm share price currently around £7.66, that 25p equates to about 3.3% of the price.
In other words, the current total yield is roughly 9.3%. That strikes me as highly attractive and explains why I have been repeatedly buying Dunelm shares for my portfolio over recent weeks.
What about the share price?
But I think there is more to this dividend share than just dividends!
With a share price 27% lower than a year ago and at only 10 times earnings, I think there is the opportunity for a long-term price gain here, if Dunelm’s business does well.
Am I being too optimistic though?
After all, that steep share price fall suggests that investors are cooling on Dunelm. The company has warned that the first six weeks of its current trading year saw “significantly softer trading”.
Dunelm pinned that on the hot weather. But it could affect full-year performance – and it may yet turn out that there is more to the recent sales downturn than just the weather, such as changing trends or consumers tightening their belts.
This looks like a high-yield bargain to me!
Still, I reckon the risks are adequately priced into Dunelm’s current valuation.
I see the share price as attractive and am compelled by the substantial possible passive income streams on offer here.
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Christopher Ruane owns shares in Dunelm.
This story originally appeared on Motley Fool
