Image source: Getty Images
When it comes to finding stocks with high dividend yields, it can pay to look outside the FTSE 100 index. While the Footsie is home to lots of high yielders, there are tons more further down the market-cap spectrum.
Here, I’m going to highlight a small-cap stock that currently sports a yield of around 7.2%. Could it be worth considering for dividend income?
A small UK building company
The stock in focus is BRCK Group (LSE: BRCK). It’s a distributor and provider of specialist products and services to the UK construction industry.
It operates across two key divisions – Distribution and Design & Install. The former is involved in sourcing, importing, and distributing building materials (bricks, timber, cladding, roofing, doors, radiators) while the latter is involved in added-value design, specification, procurement, and installation services.
Trading for just 49p
This is a small, AIM-listed company with a market-cap of just over £150m. Its shares are currently trading for around 49p. It’s worth noting that the share price has struggled for momentum recently due to the subdued UK housing market.
A massive yield on offer
But here’s the thing. Last financial year (ended 31 March), the company paid out 3.51p per share in dividends. That’s a huge payment relative to the share price. It translates to a yield of a whopping 7.2%, so we appear to have a cash cow.
Is that yield for real?
Is that payout sustainable? Well, dividend coverage (the ratio of dividends per share to earnings per share) does look pretty strong. This year, earnings per share are expected to hit 8p while the dividend is expected to be 3.6p. That gives us a dividend coverage ratio of 2.2, which is high and signals that the payout should be secure in the near term.
The stock looks dirt cheap
Looking beyond the blockbuster yield, there’s another attraction here and that’s the company’s valuation. It’s super low. Taking that 8p per share earnings forecast and comparing to the 49p share price, we get a forward-looking price-to-earnings (P/E) ratio of just six. So there appears to be a fair bit of value on offer here at the moment.
What are the risks?
Is there a catch? Well, the UK housing market isn’t in great shape right now – earlier this week BRCK said that market conditions remain challenging. The company added that there’s limited visibility in the timing of a recovery in housebuilding starts. With the Bank of England now expected to increase interest rates this year, things could get worse before they get better.
Potential for big returns?
I expect conditions to improve eventually though. And when they do, BRCK should benefit. So the stock could be worth considering. With a rock-bottom valuation and a sky-high dividend yield, it has the potential to generate attractive long-term returns.
What income stock do we like better than BRCK Group 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.
Edward Sheldon does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
