If I buy Steppe Cement (LSE:STCM) stock today, I could expect a whopping 10% dividend yield. That’s pretty good for a penny stock and is among the best returns I’ve seen from a London-listed firm. So, is this Kazakh cement manufacturer right for my portfolio?
The spread
The first issue for me is that this stock has quite a sizeable ‘spread’. Penny stocks, particularly at the lower end, tend to be smaller companies and are thinly traded. As a result, they can be swayed by larger trades. I can currently buy Steppe shares for 37p, but the selling price is 33p. That would mean the stock would need to gain by at least 12% for me to be able to make my money back, without including any dividends received. So that’s an issue for me.
Strong performance
Steppe Cement said in April that Q1 revenue rose on the back of stronger cement sales volumes, which were complemented by higher prices during the period. It posted revenue of $14m in the three months ended March 31, representing a sizeable jump from the same period in 2021.
Sales volume rose 6% while average prices for delivered cement increased by around 4%. The company said that demand for cement remained strong but warned of a high degree of uncertainty due to the geopolitical situation.
Demand for housing
Steppe Cement is likely to benefit from strong ongoing demand for housing in Kazakhstan. New housing commissions leapt 7.7% between January and March. The government attributes long-term demand for housing to the outdated nature of existing dwellings as well as an increase in the birth rate and marriage registration over the past 20 years.
In 2022, the development of the housing market should continue, but the growth rate will not be as significant as in 2021, according to the Prime Minister’s office. There were signs that the market may have been overheating in 2021 as the number of housing purchases and completions increased almost twofold.
However, the long-term outlook is good. The government has highlighted housing as an important area that could improve social wellbeing. At the same time, housing construction, by solving social problems and delivering thousands of jobs, can become a vehicle for economic growth.
Social unrest
But there are risks. Neighbouring Russia is waging war in Ukraine, and it’s also worth remembering that the year started with civil unrest in Kazakhstan. Nearly 10,000 people were arrested during the protests, which were triggered by increasing fuel prices. CTSO (Russian) troops were eventually deployed to quell the trouble. Could underlying distraction hurt Steppe Cement going forward? I’m not too sure, but it’s certainly something worth bearing in mind.
Should I buy?
I’m looking to add Steppe Cement to my portfolio, but only a limited amount considering the risks here. A primary issue is around the spread. Although, that 10% dividend yield will help with the 12% difference between the buying and selling price.
