Dividend shares can look particularly attractive when the market is in a funk, especially when they’re trading near their 52-week lows. In addition to receiving income, I also might get some profit when (or maybe that should be if) they recover.
So, would I be tempted to buy Plus 500 (LSE: PLUS), Vodafone (LSE: VOD) or Imperial Brands (LSE: IMB) today?
Negative sentiment
Investors in online trading platform provider Plus 500 aren’t having a great 2023 so far. At last Friday’s close, the share price had fallen 22%.
At least some of this decline appears to be related to holders being unimpressed by recent pay awards for senior managers. That hardly inspires confidence.
Still, the income stream remains decent. Based on analyst projections, Plus 500 will return 52p in the current year. This gives a yield of 3.7%. That looks pretty good to me, especially as this payout is likely to be easily covered by profit.
On the other hand, this yield isn’t any better than the roughly 3.8% I’d get from holding a typical FTSE 100 tracker. I could get even more from a bog standard cash savings account.
Factor in frequent meddling by industry regulators and Plus 500 isn’t necessarily a screaming buy. That’s despite it trading on a low price-to-earnings (P/E) ratio of seven.
I’m adding this one to my watchlist for now.
Risk of a cut?
One dividend share that is offering substantially more than the FTSE 100, at least based on forecasts, is communications giant Vodafone. Due to a substantial decline in the share price, the stock is down to yield a monster 9.3%. That’s almost enough to keep pace with inflation!
But is it sufficient to get me interested? Not really. As things stand, profit only seems set to just about cover the payout. This means that it wouldn’t take much for dividends to be cut.
There might be some green shoots to the investment case. New boss Margherita Della Valle has also already been brutally honest about the company’s poor performance and seems determined to turn things around. Planned job cuts will help.
Whether she’ll succeed is, naturally, another thing entirely. Meanwhile, the Vodafone balance sheet continues to creak under a whopping amount of debt.
I’m steering clear.
Steady dividend stock
A final income stock worth covering is tobacco behemoth Imperial Brands. The FTSE 100 company has seen its share price decline by 18% in 2023.
As bad as that sounds, Imperial is something of a Dividend Aristocrat. Seen purely from an investment perspective, the addictive nature of the products it sells has allowed it to keep earnings relatively steady. This, in turn, has kept cash returns high and fairly predictable.
This year looks to be no exception. Based on current expectations, the stock yields 8.4%, covered almost twice by profit. A P/E of six means Imperial stock is also cheap, at least at face value.
That said, some of the latter is down to the gradual decline in tobacco use. Whether the rise in popularity of supposedly-less-harmful alternative products is sufficient to keep dividends as high as they have been is questionable.
Like Plus 500, I’m adding this stock to my watchlist.
