If I had £100 to buy UK shares, I’d invest it in Wickes Group (LSE:WIX).
Wickes is a home improvement retailer and garden centre business that operates more than 200 stores throughout the UK. It sells building and DIY supplies and materials to homeowners as well as the building trade.
It demerged from Travis Perkins last April and listed on the FTSE All-Share. Newly-listed UK shares are often labelled risky usually due to a lack of history and trading information but this is not the case for Wickes. It’s an established, profitable business with years of trading and financial information available.
Wickes shares reached as high as 288p on their first day of trading but have moved lower and not reached such heights since. As I write, the shares are trading for 198p. At this time last year, they were at 263p, so the stock as seen a 24% decline over a 12-month period.
These shares come with risks
Wickes shares have two main risks currently, in my opinion. Both are linked to the macroeconomic landscape domestically and internationally.
Firstly, rising costs and supply chain issues have placed pressure on many businesses providing traditional goods, such as home improvement materials. The supply chain issues have led to issues with sales, and rising costs are eating away at profit margins. This could affect the bottom line and any shareholder returns.
Next, rising inflation has put pressure on the cost of living. Demand for DIY and home improvement products may decrease as consumers are more concerned with paying bills and day to day living expenses. This could hurt the Wickes performance and returns.
It’s worth noting that there are many UK shares facing the aforementioned risks, and Wickes isn’t alone here.
Why I’d buy Wickes shares
The business has a good track record of recent and historic performance. I do understand that past performance isn’t a guarantee of the future, however. Wickes released excellent results for the year ending 31 December 2021 just last month. It reported revenue, like-for-like sales and profit all up compared to 2020 levels. In addition to this, it declared a final dividend of 8.8p per share. As a passive income seeker, UK shares that pay dividends are a must for my holdings.
Wickes shares look cheap to me on a price-to-earnings ratio of just 8. In addition to this, the current dividend yield is over 4%. This is higher than the FTSE 100 average of 3%-4%.
The firm has made significant progress in increasing its trade customers in recent times. Demand for housing, which is currently outstripping supply, will benefit firms like this that sell essential materials and products for the building boom in the UK. This should boost Wickes’ bottom line and shareholder returns.
Overall I’d happily add the shares to my portfolio. This is one of a number of UK shares I have had my eye on and with the recent price drop, mainly due to macroeconomic factors out of its control, it looks cheap. As a bonus, it pays a dividend to offer me a passive income stream too.