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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 implies that if I spend £100 on shopping for its shares right now, I ought hopefully to earn barely over £8 yearly in dividends.
However regardless of that earnings attraction, the share has been getting cheaper. It has already fallen 9% this yr and we’re not even three months in but! Over 5 years, the share worth has tumbled 41%.
Is {that a} signal that I ought to contemplate getting ought whereas I can? Or is that this the kind of shopping for alternative that varieties the stuff of investor desires?
Sturdy place in a permanent market
You could be aware of 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 may do properly even within the face of fixing tastes. Its robust place and deep understanding of the tile market ought to assist Topps keep on prime of what prospects need.
In addition to an intensive community of outlets that permit 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 prospects.
Valuation issues
However different buyers can see what I see (or extra) – and but have pushed down the value of the FTSE 250 share.
Why?
One cause 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% yr on yr.
The mounted prices of a enterprise like Topps are excessive, from store leases to protecting hundreds of thousands of tiles in inventory awaiting patrons. So even a reasonably modest seeming slowdown in gross sales can badly damage earnings. That in flip may result in the dividend being decreased.
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 take a position right now, I’d fortunately purchase extra of the shares.
