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A penny inventory with a sizeable dividend yield tends to catch my eye. That is actually the case with Steppe Cement (LSE: STCM) and its 20% yield. Sure, you learn that accurately, 20%. Is the yield really sustainable, and will I contemplate snapping up some shares? Let’s take a better look.
Cement and electrical energy
Because the identify alludes to, Steppe is an funding holding firm with a core give attention to producing and promoting cement from its base in Kazakhstan. It additionally makes some cash from the transmission and distribution of electrical energy.
It’s price remembering {that a} penny inventory is one which trades for lower than £1. As I write, Steppe shares are buying and selling for simply 27p. Presently final yr, they have been buying and selling for 31p, which equates to an 8% drop over a 12-month interval.
Breaking down the yield
Excessive-yields are attractive, let’s be sincere. However, I’m no idiot (see what I did there) and have a tendency to dig deeper and see what’s behind the scenes.
Such a excessive yield tells me a few issues. Investor sentiment is plunging, or the enterprise is struggling financially and the share value is falling off a cliff. One other factor some companies do is to spice up their yields artificially to draw traders, even when they know they will’t maintain the payout.
So what about Steppe? In December, it paid a dividend of 5p, and primarily based on its present share value, that interprets into its mighty yield. Nevertheless, after a powerful yr in 2022, issues look a bit extra bleak this yr. That’s primarily based on the half-year outcomes it launched. The enterprise reported that portions and costs of cement have dropped. Its quantity of cement has dropped by 10% in comparison with final yr and income dropped by 13% too. Gross revenue greater than halved.
There’s an opportunity that Steppe turns issues round and that the second half of the yr is fruitful. Personally, I’m not satisfied. Robust macroeconomic situations together with hovering inflation, rising rates of interest, and provide chain issues may hamper it.
A penny inventory I’ll control
Cement isn’t precisely thrilling. One reality that may’t be ignored is it’s an important part of day by day lives. It’s important in just about any and all development. Once I suppose that the world’s infrastructure spending is barely growing, this might assist increase cement companies like Steppe.
Do I feel Steppe will wrestle over the long-term for patrons and demand for its merchandise? In all probability not. Nevertheless, there are greater and far better-known companies on the market that may provide the identical kind of merchandise, in my view.
Steppe’s dirt-cheap valuation with a 12 month trailing price-to-earnings ratio of simply 4 is enticing on the floor of issues. Nevertheless, for me, the outlook for the enterprise, current outcomes, and the sustainability of the yield lead me in direction of avoiding the shares.
Taking every part into consideration, I’m going to maintain Steppe Cement shares on my penny inventory watch listing. I’m significantly eager to assessment the full-year outcomes once they’re out there. I feel there are higher small-cap alternatives on the market for me and my holdings.
