To say that the CMC Markets (LSE: CMCX) share price has had a bad year would be an understatement. It has more than halved during this time, despite it being an eye-watering dividend stock. But things might be about to change for the better for this FTSE 250 stock.
Strong trading update for CMC Markets
I am hopeful after its 9% jump in share price this morning following its trading update for the financial year ending 31 March 2022. There is plenty going right with the company these days. For instance, it expects net operating income to be £280m. This is at the top end of its guidance.
The company did particularly well during the pandemic, as UK’s household savings rose to all-time highs. While the latest numbers do not top this, the company says that “it is a record performance outside of the pandemic period”. A big reason for its share price fall over the past year was its downgraded earnings forecasts. But clearly, sentiment on the stock seems to be moving past that initial shock.
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Still a dividend stock, and helped by buybacks
Sentiment has also likely been positively impacted by the company’s share buyback programme, which will complete by the middle of next year. Buybacks can be good for share prices. And they can also be quite rewarding for existing shareholders, who get paid for the shares bought back by the company.
This will also make up for CMC Markets’ potential dividend cut. For the last financial year, the company had a huge dividend yield of 10%. But if the sharp latest reduction is anything to go by, it could be set to fall. As an investor in the FTSE 250 stock though, I am not terribly worried. It has had a pretty decent dividend yield over time. In the past five years alone, it has averaged 6.3%, still qualifying it as a dividend stock. And then there are the buybacks.
Good growth prospects for the FTSE 250 stock
Moreover, I think it has good growth prospects too. Over the past six months or so, it has increasingly talked about splitting the business into two — a leveraged segment and a non-leveraged one. Things appear to have gone quite well since. As per the latest update, its non-leveraged platform will be available to the broader market over the next quarter. For now, it has been launched for its UK staff, which “has been achieved ahead of schedule and on budget”.
A dirt-cheap stock I’d buy
To take stock, there is little denying that CMC Markets has been a disappointing stock to hold from a capital growth perspective in the past year. Its earnings have corrected. And as a result, its dividends have declined too.
But the worst appears to be over. Its latest earnings numbers as still quite strong. The company is in the process of buying back shares, which could give shareholders solid returns and even make up for the cut in dividends. And its decision to split up the business could be good for growth too. Despite all this, it has a dirt-cheap valuation of 7.4 times right now, in terms of price-to-earnings ratio. I could buy more of it now.
