I’m looking to strengthen my holdings through stocks that pay regular and consistent dividends. One income stock that could do this is Crest Nicholson (LSE:CRST). Should I buy or avoid the shares?
Property developer
As a quick introduction, Crest is a property development business. It focuses its operations primarily in and around the London area. It builds and sells properties such as family homes, apartment complexes, and more.
So what’s happening with Crest shares currently? Well, as I write, they’re trading for 224p. At this time last year, the stock was trading for 378p, which is a 40% decline over a 12-month period. Many stocks have come under pressure due to macroeconomic headwinds as well as the tragic events in Ukraine.
An income stock with risks to consider
Soaring inflation, the rising cost of materials, and the global supply chain crisis could cause Crest issues. When costs rise, profit margins are put under pressure. If prices are hiked, Crest risks losing customers.
Supply chain issues could also impact operations, including the completion of properties to sell. Finally, the Bank of England (BoE) has increased the base interest rate to combat soaring inflation. The issue here is that this makes mortgages more expensive for consumers. This could affect demand for Crest too.
Another risk to note is that dividends are never guaranteed. I must bear this in mind when considering any stock for dividend income. Dividends can be cancelled at any time. This is more likely to happen during times of economic volatility, like now, when companies may need to conserve cash.
The positives and what I’m doing now
So to the positives, then. I like Crest’s business model of focusing its operations in the South of England. This is because property prices are traditionally higher in this region. That means that it is in a position to sell at higher prices and make higher margins. This could support performance growth and returns.
Next, there is a severe shortage of homes in the UK. With demand outstripping supply, Crest should be able to leverage this increased demand to boost its performance and levels of return.
As with any income stock, I want to understand the level of return I could receive. I look at the dividend yield to learn this. At present, Crest shares yield 6.6%. This is over three times the FTSE 250 average of 1.9%.
Although I am aware that past performance is no guarantee of the future, I am buoyed by Crest’s latest trading update. A half-year report for the period ended 30 April was released in June. It confirmed that revenue increased by over 12% compared to the same period last year. In addition, profit, home completions, units sold, and net cash increased too. An interim dividend of 5.5p was declared.
In conclusion, I like Crest Nicholson shares. I am not worried by current volatility in the market and the fact the share price has fallen. In fact, this makes the shares more appealing. I would add the shares to my holdings as an income stock to boost my holdings for the long term.