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My search for dividend shares brings me to Robert Walters (LSE: RWA) with its huge 12.5% forecast yield. The company is having a tough time, with the economy of the past few years taking a toll on its specialist top-end recruitment services.
Operating profit fell 80% in 2024 to £5.2m, with an earnings per share (EPS) loss of 9.1p. The share price has crashed 79% since a peak in early 2022.
But the company maintained its 2024 dividend at 23.5p per share “in view of balance sheet strength“. Net cash of £52.5m is enough to cover that operating loss 10 times over.
Analysts have the dividend holding steady for the next few years too — even though forecast earnings won’t come close to covering it this year or next. But if these predictions come true, we could see cover by 2027 — only about 1.1 times, but back on the right side.
Primed for a cut?
Do big investors have confidence in Robert Walters’ recovery and trust the dividend prospects? If they did, surely they’d snap up the shares and lock in that big dividend yield, wouldn’t they? The price collapse shows that’s not happening.
The company’s strategy is not entirely clear. A Q1 update in April reported net fee income down 16%. It spoke of challenging conditions, limited visibility, macroeconomic uncertainty…
Other than keeping a tight rein on costs, I’m not sure the plan is to do much more than just wait for things to get better. But that might actually be what’s needed.
Expecting ups and downs
This business is cyclical, and it can come to a near halt when times are bad. But if you know that, then maybe just build up enough cash to be able to sit out the down spells? Robert Walters does seem to have mastered the cash side of things.
Why would City investors shy away if that’s what’s happening? Well, maybe they’re just not interested in a small company with a market cap of only £120m. With the sums the big players have to invest, they’d only be able to make pocket money at best.
What might turn things round? The next trading update is due on 15 July, followed by 2025 half-year results on 31 July. Will we see signs of a profit upturn for the full year? Maybe even a move back towards positive EPS while analysts expect another per-share loss this year?
Small-cap unpredictability
If the outlook appears to be brightening, I wouldn’t be surprised to see investors start to get back on board. And more positive noises about the dividend could really provide a confidence boost.
But let’s get back to the key risk, which is not a small one. We need the company to have enough cash to keep paying the dividends until earnings get back on track to cover them. Otherwise, shareholders might have to take a hefty dividend cut on the chin.
The small-cap investor in me thinks this has to be a risk worth considering.
