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When the FTSE 100‘s near an all-time high, finding value isn’t easy. But that doesn’t mean it’s impossible. In fact, several high-yielding UK dividend stocks still look surprisingly cheap – at least on paper.
And one that’s caught my eye lately is the global sales, marketing and support services group DCC (LSE: DCC). Now, it’s not a household name like BP or Tesco, but it yields just under 5%, has a 13-year streak of dividend growth, and might be seriously undervalued — if analyst estimates are anything to go by.
What’s going on with the DCC share price?
Last month, DCC announced plans to offload its IT business, a minor division accounting for just 1% of operating profits. Yet investors didn’t take the news well. Despite raising $134.9m from the sale, the share price dipped – possibly because the net proceeds were deemed immaterial.
Still, the move’s part of a bigger picture. DCC’s simplifying its operations and in May it kicked off a £110m share buyback programme.
So far this year, the shares are down nearly 10%. But that’s where things start to get interesting.
The trailing price-to-earnings (P/E) ratio’s a lofty 22.5. But based on forward earnings, it falls to just 10.4 – a strong sign that analysts expect profits to bounce back.
In fact, out of 11 brokers tracking the stock, the average 12-month price target represents a 31% gain from today’s price. The boldest prediction? A 92% upside, with a target of 9,000p.
This is further supported by future cash flow estimates, which suggest DCC could be 44% below fair value right now.
A quality dividend stock?
Even if that bounce never comes, the income case alone looks compelling. The dividend per share is over £2 and has grown 10% a year for the past decade. That’s solid, and so is the payout ratio, which remains safely below 100%.
DCC has paid reliable dividends for over 20 years, making it one of the most consistent dividend stocks on the FTSE 100. It’s also got a strong balance sheet, with £594m in operating cash flow and 25% more equity than debt. Not bad at all.
What are the risks?
Not everything’s rosy. Profitability’s on the weak side, with an operating margin of just 2.56% and return on equity (ROE) at 6.75%.
Revenue growth’s down 9.3% year on year, while earnings growth’s down 36%. So if upcoming results disappoint, the price could fall even further.
There’s also the lingering threat of tariffs, which prompted Deutsche Bank to downgrade the stock in April due to global trade uncertainty.
So is DCC an undervalued gem?
While the valuation looks good, there are clear risks here and a recovery isn’t guaranteed. Still, as a dividend stock with a long and reliable income track record, it ticks a lot of boxes.
Even if the recovery doesn’t arrive, investors are still paid handsomely to wait. And if it does? All the better. That makes it a stock worth considering in my book.
