A share to plug into

It’s probably the time of year to start thinking about the festive season holidays and the usual excesses that accompany them.

Many of us would fantasise about receiving another bonus in the first few weeks of 2019 — to help mop up a soggy debt deck in the wake of the Christmas spending tidal wave.

Dividends from companies with a December year-end tend to only roll in during April, May and even June. But perhaps there is a way of landing a dividend from a modestly priced company where there is also potential capital gain via a long overdue market re-rating.

Let me confess that I can be a bit of a “dividend farmer”. It’s a tricky ploy, and the dividends ploughed back into my trading account don’t always cover the subsequent capital loss when shares go ex-dividend.

One effort that did not pan out last year was a punt on consumer goods specialist NuWorld Holdings. It paid a hefty dividend of 292c/share in early February this year, but the share price retreated after payment was executed and I sold at a small loss.

Nu-World is worth another look this year. The share — R36.80 at the time of writing — is below the R41-R43 levels at the end of September and early October last year.

The share price lull is curious because Nu-World — which provides low-cost household appliance brands as well as a new thrust into niche liquors — looks in better shape this year than last year. I’d wager the company, notwithstanding the prevailing squeeze on discretionary spending, will pay a higher dividend for the year to end-September 2018.

In the previous financial year Nu-World more than doubled pretax profits to R219m, and posted a 73% hike in headline earnings to 780c/share. The dividend payout was covered 2.7 times by earnings. In the interim period ending February 2018, pretax profits were R114m and headline earnings nearly 400c/share.

The economy is getting tougher — but I can’t imagine Nu-World posting anything less than 800c/share for the full financial year. A trading statement should be due any day now. Earnings of 800c/share would put the share on a forward earnings multiple of 4.6, and presuming a dividend payout of 300c/share, an attractive yield of more than 8%.

What might worry punters is that Nu-World’s operational cash flows reversed dramatically in the interim period. But directors did point to a 55% increase in trade and other receivables to R544m — due to strong late sales in both local and offshore operations at the end of the interim period.

In other words, if we take the word of directors the “missing” cash flows should materialise in the second half.

Another worry is the influence of the weaker rand on imported product lines.

Yes, that is always going to be an issue — especially when it is difficult to pass on price increases to already financially stressed consumers.

But there is a growing “offset” at Nu-World with a rapidly growing contribution from offshore operations based in Australia, Africa, the Middle East, Eastern Europe, the Indian subcontinent and Latin America.

Judging from directors’ commentary, traction is being gained in large markets in Latin America, Eastern Europe and the Indian subcontinent.

Perhaps the biggest drawback is the reticence by directors to comment on prospects — which might be interpreted as a lack of confidence in second-half prospects.

Nu-World has always been below the radar and, as far as I can remember, has not openly engaged investors through company presentations.

Both members of the founding Goldberg family remain involved in the executive functions of the business.

There have been questions around succession, especially now that investment company Wild Rose Capital has snagged an influential 33.5% stake in Nu-World.

The Goldbergs have done a superb job over three decades in maintaining a lean and mean consumer goods operation with an enviable basket of niche brands that has always produced profits and dividends.

Conservatism might understandably have crept in and having Wild Rose Capital in a strong position should ensure Nu-World does not follow other small family controlled businesses into a comfort zone that can turn into stagnation.

Nu-World can be bought at current levels for a handsome dividend — but there’s also enough intrigue to stay onboard for the longer term.

The Goldbergs have done a superb job over three decades in maintaining a lean and mean consumer goods operation