On 2 February, commercial flooring manufacturer and distributor James Halstead (LSE: JHD) issued a positive trading statement. But why should we care about that? After all, in these challenging times, perhaps commercial flooring isn’t the first sector investors’ minds turn towards when thinking about income shares.
A resilient business
But maybe we should. James Halstead’s business is tougher than it at first might appear to be. For example, the company has a multi-year record of increasing shareholder dividend payments. And that includes the pandemic years. Not only did the firm maintain its dividend, it also raised it in 2020, 2021, and 2022.
On top of that, City analysts expect further modest increases in the shareholder payment for this year and next. And that will extend the long run of unbroken annual dividend rises into the future.
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I reckon the firm’s record on dividends is attractive. But near 203p, the share price has dropped back by just over 19% since this time last year. And that’s pushed up the dividend yield to an attractive level. The forward-looking figure for the trading year to June 2024 is around 3.9%.
Now, cyclicality is a double-edged sword. And it’s fear of cyclical effects on the business that I reckon keeps the stock swinging up and down. But, James Halstead’s earnings have actually been resilient. They dropped by about 9% in 2020. And analysts expect a minor easing of about 1% in the current trading year. However, the company has delivered an increase in earnings every other year since at least 2017.
Sales are ahead
In the recent trading update, the company referred to the challenges of rising energy and raw material costs. And, on top of that, trading of UK manufactured goods has been affected by the lack of availability of international shipping to several overseas territories. Among the worst affected were Australia and the Americas.
Nevertheless, Chairman Anthony Wild said sales were “ahead” in many of the company’s markets. And for the six months to 31 December 2022, revenue will likely come in around 8% to 9% higher year on year. We’ll get the full picture with the half-year results due on 31 March.
But looking ahead, there’s potential for business conditions to improve. The directors said freight and raw material costs began to decline in December, although energy costs are still historically high. However, the company’s European raw material suppliers have not faced production interruptions because of energy shortages.
Meanwhile, destocking by the business has helped an already strong balance sheet become even more robust. And one important thing we don’t appear to be hearing from the directors is that demand for the firm’s products has been slowing.
However, demand patterns can change at any time. And the forward-looking earnings multiple stands at almost 21 for the trading year to June 2024. So this stock is not without it’s risks. But I think it’s worth considering and researching now.
