Investing in lower-priced stocks that offer a tasty and growing dividend yield can help you generate a steady stream of passive income at a low cost. One such under-$10 dividend stock that pays a 6.8% yield is Decisive Dividend (TSXV: DE). Valued at a market cap of $153 million, Decisive Dividend pays shareholders a monthly dividend of $0.045 per share, indicating a yield of almost 6.8%.
In the last 10 years, the small-cap stock has risen close to 700%. After adjusting for dividends, cumulative returns are much higher at 1,430%. However, the TSXV dividend stock trades 29% below all-time highs, allowing shareholders to buy the dip. Let’s see if this dividend stock should be a part of your portfolio in 2024.
An overview of Decisive Dividend
Decisive Dividend is an acquisition-oriented company focused on opportunities in the manufacturing sector. It uses a disciplined acquisition strategy to identify profitable, high-quality manufacturing companies with a sustainable competitive advantage, a focus on non-discretionary products, steady cash flows, and growth potential.
Decisive Dividend acquires Techbelt
Last month, Decisive Dividend acquired Techbelt, a manufacturer of PTFE (polytetrafluoroethylene) conveyor belts, PTFE tapes, and related materials used in a wide range of end markets such as food and beverage, packaging, textiles, and fast-moving consumer goods.
The acquisition was valued at $6.3 million and self-funded through a drawdown on the company’s syndicated credit facility.
The acquisition enhances the scale of Decisive Dividend’s wear-parts product segment while allowing it to expand in the United Kingdom. Moreover Decisive Dividend expects the acquisition to be immediately accretive and increase adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) by 3% year over year.
Decisive Dividend stated that Techbelt adds another recurring revenue, high-margin, low-capital intensity business to its portfolio.
How did Decisive Dividend perform in Q1 of 2024?
Due to a challenging macro environment, Decisive Dividend reported revenue of $29.4 million in the first quarter (Q1) of 2024, down 5% year over year. The decline in the top line was driven by decreases in hearth product sales, where backlogs were lower in Q1 compared to the year-ago period.
Its consolidated gross profit rose 1% to $11.2 million, indicating a margin of 38%, up from 36% in the prior-year quarter. One reason for the high gross margins was the contribution from four high-margin businesses acquired in 2023.
However, an elevated cost environment meant adjusted EBITDA fell by 19% to $4 million in the March quarter. Its net income fell to $0.2 million, or $0.01 per share, compared to a net income of $2 million, or $0.13 per share, in the year-ago period. Its consolidated free cash flow also fell 36% to $1.9 million, or $0.10 per share.
Decisive Dividend explained that an erosion in profit margins has meant its payout ratio has risen to 66% in the last 12 months, up from 54% in 2023. However, it is still within target levels, providing the company with the flexibility to target accretive acquisitions and grow the payout over time.
Priced at 13.8 times forward earnings, the dividend stock is quite cheap, given that analysts expect adjusted earnings to expand from $0.45 per share in 2023 to $0.58 per share in 2024 and $0.75 per share in 2025.
Analysts remain bullish and expect the stock to surge over 40% in the next 12 months.
