High-yield dividend stocks come in all shapes and sizes. But one of the most important considerations is whether the shareholder payment has the potential to grow from year to year — or not.
And I can see many attractions with Moneysupermarket.com (LSE: MONY). But to appreciate the stock’s beauty, I’ve purged all notions from my mind that the company has a high-growth business.
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Perhaps it used to. But businesses mature. And this one looks more like a cash-cow now with the potential for modest growth ahead. But those characteristics make it worth examining as a potential high-yield dividend payer for a long-term diversified portfolio.
Strong brands
Many will be familiar with the name. The company runs price comparison sites for insurance, money, home services, and other products. And it has brands such as MoneySuperMarket, MoneySavingExpert, Quidco, Icelolly, Decision Tech, and TravelSupermarket.
The business model is straightforward. MONY earns a fixed marketing fee from product providers when customers buy via one of the comparison websites. And the directors reckon the business is “highly scalable”.
However, as with all enterprises, there are some risks for investors. And one is that the sector is quite competitive. Although the company does have those well-established and well-known brands to help it maintain market share. And it also keeps buying up the competition!
But earnings declined in 2020 and 2021. However, the pandemic made trading difficult for many companies. Nevertheless, the situation does suggest the business may be vulnerable to the effects of economic cycles.
Meanwhile, with the share price near 227p, it’s around 45% lower than its peak in the summer of 2019. But over the past year, it’s bounced back by around 9% after dipping even lower along the way. So the stock has been volatile. And that may be a negative for some investors.
Reasons to buy
But there are three compelling reasons to buy the stock now. And the first is the stable multi-year dividend record. The shareholder payment increased by mid-single-digit percentages each year in 2017, 18 and 19. The directors held it flat in 2020, 21 and 22. But crucially, they didn’t cut it. And City analysts expect low-to-mid single-digit uplifts in 2023 and 24.
I think the dividend record underlines the stability of the company’s cash flow. After all, it takes cash to pay dividends. But the second reason to buy the stock is the strong balance sheet showing net cash rather than net debt. And that’s further evidence of the cash-producing qualities of the enterprise.
However, MONY also shows attractive quality indicators for operating margin and return on equity. Yet the third compelling reason to buy is the recent positive outlook statement delivered with the full-year results in on 16 February.
The directors see opportunities for growth ahead. And their optimism came backed by a pleasing set of figures for 2022. Revenue grew by 22% year on year, adjusted earnings per share rose by 21% and operating cash flow lifted by 59%. And the strong performance enabled a reduction in debt of 38%.
Meanwhile, the forward-looking dividend yield for 2024 is around 5.5%. And I think that valuation looks attractive. Indeed, the stock looks worthy of further research with a view to a long-term hold.
