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FTSE 250 high-performance polymer producer Victrex (LSE: VCT) paid a 59.56p dividend final yr. This generates an 8.4% yield on the present share worth of £7.10. In contrast, the common yield of the FTSE 250 is 3.4%, whereas the FTSE 100’s is 3.6%.
Analysts forecast that the dividend will stay unchanged this yr earlier than dropping barely to 59.3p in 2026. In 2027, it’s forecast to rise once more — to 60.6p.
Based mostly on the present share worth, these payouts would give respective dividend yields of 8.4% this yr and subsequent, and eight.5% in 2027.
How a lot passive earnings might be made?
The typical UK financial savings quantity of £11,000 would purchase 1,549 shares in Victrex. On the present 8.4% yield, these would generate £924 in first-year dividends. On the identical common yield over 10 years, this could rise to £9,240 and after 30 years to £27,720.
Nonetheless, utilising the usual funding observe of dividend compounding would vastly improve these returns.
By doing this on the identical common 8.5% yield, the dividends can be £14,406, not £9,240, after 10 years. And after 30 years on the identical foundation, they’d rise to £124,520, relatively than £27,720!
Together with the preliminary £11,000 funding and the holding can be price £135,520 by then. And that may give a yearly passive earnings from dividends of £11,384.
How does the enterprise look?
Earnings progress is what in the end drives any agency’s share worth and dividends.
A danger right here for Victrex stays the rollout of China’s Quantity-Based mostly Procurement (VBP) programme for medical provides. On this, the federal government bulk-buys medication and tools through tenders to safe the bottom costs.
The impact of this was evident in its 8 July Q3 buying and selling replace. Total gross sales quantity rose 8% yr on yr, powered by its Power & Industrial, and Sustainable Options (supporting carbon dioxide discount) divisions.
Nonetheless, the common promoting costs for its merchandise dropped 11%, pushed by its Medical Provides division. This resulted in a 3% fall in income to £71.5m over the interval.
Given China’s ongoing VBP initiative, Victrex should improve its quantity to drive up earnings from its Medical Provides division. That stated, the agency acknowledged within the replace that it’s progressing in scaling up its new Chinese language manufacturing facility.
Because it stands, from now to the top of 2027, analysts forecast a median annual earnings progress price of twenty-two.3%.
A possible revenue on the share worth too?
This earnings profile is mirrored within the discounted money move evaluation for Victrex, which is the optimum valuation technique, for my part.
It identifies the place any agency’s share worth ought to be, primarily based on money move forecasts for the underlying enterprise.
The DCF for Victrex reveals its shares are undervalued by 54% at their present worth of £7.10. Due to this fact, their honest worth is £15.43.
Will I purchase the inventory?
I consider the agency’s sturdy earnings progress prospects will drive the share worth a lot larger over time. It’ll additionally do the identical for its dividends, I feel.
I have already got a fastidiously compiled portfolio of excessive dividend-paying shares, with which I’m comfortable. Nonetheless, I’ve added Victrex to my watchlist ought to any of those shares underperform for a sustained interval.
