This FTSE 250 share yields 8.1%. As its price falls, should I buy more?
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I prefer to search for worth not solely within the flagship FTSE 100 index of main shares, but in addition in its sister FTSE 250 index of small and medium firms.
One FTSE 250 share I already personal affords a dividend yield of 8.1%. That signifies that if I spend £100 on shopping for its shares in the present day, I ought hopefully to earn barely over £8 yearly in dividends.
However regardless of that revenue enchantment, the share has been getting cheaper. It has already fallen 9% this 12 months and we aren’t even three months in but! Over 5 years, the share value has tumbled 41%.
Is {that a} signal that I ought to think about getting ought whereas I can? Or is that this the type of shopping for alternative that types the stuff of investor goals?
Sturdy place in an everlasting market
You could be accustomed to the corporate in query, even when you’ve got not recognized it from the outline above.
It’s Topps Tiles (LSE: TPT), a tile wholesaler and retailer that has been in enterprise for many years already. In recent times it has had a strategic focus of promoting one in 5 of the tiles purchased in Britain. The agency has achieved that milestone.
Why do I like this enterprise?
Demand for tiles could go up and down relying on how many individuals transfer home and whether or not disposable incomes are excessive sufficient to justify splashing the money on a brand new look for a loo, kitchen, or utility room.
Over the long run, although, I count on enduring demand for tiles. Topps additionally sells different floor coverings like vinyl, so the FTSE 250 agency might do effectively even within the face of adjusting tastes. Its sturdy place and deep understanding of the tile market ought to assist Topps keep on prime of what clients need.
In addition to an in depth community of retailers that allow DIY followers and builders get what they want with out ready for it, the enterprise has additionally been steadily increasing its on-line footprint lately for each commerce and retail clients.
Valuation issues
However different buyers can see what I see (or extra) – and but have pushed down the worth of the FTSE 250 share.
Why?
One purpose is issues concerning the dangers of declining gross sales. That would end result from a weakening housing market or tighter family budgets resulting in the deferral of non-essential expenditure. In its most up-to-date quarter, the corporate’s like-for-like gross sales fell 7% 12 months on 12 months.
The fastened prices of a enterprise like Topps are excessive, from store leases to maintaining tens of millions of tiles in inventory awaiting patrons. So even a reasonably modest seeming slowdown in gross sales can badly damage earnings. That in flip might result in the dividend being diminished.
I’d purchase
I recognise these dangers. I feel they assist clarify why Topps is now in penny share territory.
As a long-term investor, although, I see this FTSE 250 firm as having a confirmed enterprise mannequin primarily based on a robust place in a market I count on to see demand for many years to return
So if I had spare money to speculate in the present day, I’d fortunately purchase extra of the shares.