Keep buying Card Factory: the special dividends take the yield to attractive levels

A third extra payment in a row looks likely as the firm continues to throw off cash, says Russ Mould

A STRONG first-half trading update earlier this month from Card Factory reaffirmed our faith in the greetings cards, wrapping and gifts specialist and could go a long way to persuading the market that the firm can continue to churn out special dividends on top of its (still-growing) regular annual payment.

The most pleasing feature of the firm’s interim statement was the 3.1pc increase in like-forlike sales. Boosted by a return to growth at the Getting Personal online business, that easily outstripped the 0.6pc advance registered in the whole of the last financial year.

In addition, management continues to roll out new stores and drive through business efficiencies and improve the customer experience. The introduction of contactless payments across the store estate will be a welcome (if

overdue) enhancement, helping customers check out much more quickly.

The increase in the top line will help to offset higher costs, which largely stem from the national living wage and the falling pound, although the investment case still rests on Card Factory’s excellent cash generation and potential to pay attractive ordinary and special dividends. Any earnings growth on top will be a bit of a bonus. Debt is low, margins are high and cash flow is robust. As a result Card Factory looks capable of increasing its regular annual dividend to 10p from 9p a year ago and paying a third straight annual special dividend of 15p, according to estimates from broker Peel Hunt. That would take the total to 25p, good enough for a yield of 7.6pc.

The shares have advanced smartly from around 240p since we first tipped them last November and further capital gains are also possible if the market becomes more confident that cash flow and the fat total dividend payout are sustainable.

Questor says: buy

Ticker: CARD

Share price at close: 329.6p

Update: Aggreko

Support services firm Aggreko may be an expert in temporary power generation but investors are clearly going to have to be patient with the stock, judging by the indifference with which the market treated what looked like perfectly solid interim results earlier this month. As has become customary, the company’s ongoing contract problems in Argentina took all of the headlines as they held back sales at the power solutions arm. But rental solutions did well, a 12pc fall in group pre-tax profit met expectations and the company left its interim dividend unchanged at 9.38p as efforts to sweat the balance sheet and reduce working capital hugely boosted cash flow.

A cost-cutting programme means that any increase in the top line will drop through quickly to profits and the Argentina story really is old news now. A forward price-to-earnings ratio of 15.1 times (depressed) earnings looks like decent value and even the yield is far from shabby at 3.1pc. Aggreko’s long-term position looks good, as the global power deficit widens, and any recovery in spending across the oil and gas industry would be a further bonus. Risk-tolerant investors can continue to buy on weakness.

Questor says: buy Ticker: AGK

Share price at close: 844.5p

Update: Manx Telecom

When a share price starts to slide for no apparent reason, especially after what looked like a solid trading update last month, it is easy to start doubting yourself and wondering what you had missed. The sudden plunge in shares in Manx Telecom this month prompted such misgivings and the announcement that the company’s chief financial officer had been suspended had this column fearing the worst.

The good news is that the criminal proceedings he faces are entirely unrelated to work and Manx has taken this step as a precautionary measure, according to company procedures. A court appearance has led to bail, after a not guilty plea. It is not for this column to prejudge the case but what is important is that chief executive Gary Lamb is standing in for his colleague. As a former CFO at the firm he is perfectly qualified to do so. In the meantime, income investors can look forward to receiving a dividend yield of about 6pc, although we acknowledge that the stock is less suitable for growth investors.

Questor says: hold

Ticker: MANX

Share price at close: 197.5p