Image source: Getty Images
As we look ahead to the final quarter of the year, I have been on the hunt for dividend shares to add to my portfolio.
One I already own is Card Factory (LSE: CARD). Not only does the share offer a great dividend, I also think it looks like a bargain to consider right now too.
6.7% yield – and a growing dividend
The current yield is 6.7%. That is certainly attractive to me.
On top of that, I reckon there is scope for ongoing dividend growth.
This week, the company increased its interim dividend by 8%, to 1.4p per share. That was covered almost twice over by basic earnings per share for the period of 2.7p.
Card Factory’s dividend history has been inconsistent in recent years and for several years in the wake of the pandemic, it paid no dividend at all.
However, I feel upbeat about the share’s dividend outlook. The company is solidly profitable and also free cash flow positive. If it can simply maintain current performance, it could grow the payout.
In fact, though, I think ongoing growth including the integration of the Funky Pigeon online brand could help sales grow in coming years. Revenues were up 5% year-on-year for the first half.
The share looks cheap
But there is more to this than just the dividend. I also think the Card Factory share price looks cheap from a long-term perspective — and believe investors should consider it.
The share price is now 29% below where it stood a year ago, and equates to just eight times earnings.
There are some reasons for this underwhelming performance. The company’s inconsistent financial performance in recent years has hurt investor confidence.
Weak consumer spending on the high street is also a risk to revenues.
An increasingly costly and slow postal service also threatens demand for physical cards, though the company’s expansion of its digital cards could help to combat that.
Still, even allowing for those concerns, the current valuation looks cheap to me. After all, the company has a strong brand and large nationwide presence, it is profitable and it continues to generate excess cash.
Could there be a catalyst for share price growth?
That said, just because a share looks cheap does not necessarily mean it will stop looking cheap any time soon (or ever, come to that).
At least with a high-yield dividend share like Card Factory, there is the consolation that an investor can earn passive income while they wait.
Still, the rest of the market can see what I see about Card Factory and the share price is not growing the way I think it ought to. Why?
It may be that it needs a catalyst of some sort. The interim results were solid and the share price moved up after their release, but still sits in pennies.
Any further evidence of strong performance or positive news about profitability in the company’s critical pre-Christmas trading period could potentially be such a catalyst for the price to move higher.
Meanwhile, the share’s dividend yield remains highly attractive.
What income stock do we like better than Card Factory Plc right now?
One of our Share Advisor analysts has just released a brand new stock report that we think is a must-read for any investor looking to try and generate potential income.
And the best bit is that you can see if for yourself, right now, absolutely free of charge!
No jargon. No hard sell. Just a clear look at an income share we think is worth your time.
Christopher Ruane owns shares in Card Factory.
This story originally appeared on Motley Fool
