One of the primary reasons for me buying shares is to build a passive income stream from dividends. One stock I’m currently considering adding to my holdings is FTSE 250 incumbent Cranswick (LSE:CWK).
Cranswick is one of the UK’s leading food producers and supplies premium, fresh food products.
As I write, the shares are trading for 3,602p. This time last year, they were 3,806p, which means the shares have dropped 5% over a 12-month period. So with the price falling and some investors clearly losing interest, why am I upbeat on the firm?
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The bear case
But first, the negatives. Cranswick could see its profit margins squeezed due to rising costs linked to soaring inflation. Many businesses are wrestling with the same problem. When a dividend stock is in danger of a profits fall, dividends can also suffer. This means any passive income I hope to make could be under threat.
There has been a real shift in recent years away from meat products and towards vegetarian, vegan and plant-based foods in developed markets. Yet I don’t think this is a pressing worry as this could be offset by demand in up-and-coming economies.
Recent labour shortages and the supply chain crisis could affect Cranswick’s performance and any passive income stream in the short-to-medium term too. This is an issue facing many businesses throughout the world in many different sectors.
The bull case
That said, I see plenty of positives. Cranswick has an excellent history of dividend payments. In fact, it has increased its dividends year-on-year for the past three decades! This is a remarkable feat and one that excites a passive-income-seeking investor like myself. At current levels, the dividend yield is just under 2%. This may not seem the most attractive, but I’m more buoyed by consistent payouts and growth.
So how has Cranswick managed to increase its returns for so long? Well, it has an excellent track record of performance. I do understand past performance isn’t a guarantee of the future. However, Cranswick has enjoyed revenue and gross profit increases for the past three years — one of the toughest periods in business history!
Coming up to date, a Q3 trading statement released in February was promising, with mentions of solid trading and a robust balance sheet, albeit a lack of figures. Full-year interim results are due next month. I’d expect to see growth in earnings and dividends and I’d expect the shares to move upwards too.
Meat may not be seen as a growth market, but overall meat demand in the world is increasing. This could benefit Cranswick, and boost performance as well as shareholder returns.
A passive income stock I’d buy
It may not be the most glamorous business and there are other stocks that possess higher dividend yields. Despite this, I’m enticed by its growth story, consistent payouts and the track record to date.
I would add Cranswick shares to my holdings at current levels and hold on to them to help boost my passive income stream. The shares currently sport a price-to-earnings ratio of just 19. Although that’s above the traditional ‘value’ benchmark, this looks like good value to me based on consistent earnings and dividend growth. Plus there’s the fact the shares are still trading lower than last summer’s highs of over 4,000p.
