The UK inventory market has some terrific dividend shares. And whereas James Halstead (LSE:JHD) doesn’t appeal to the eye of a few of its larger counterparts, it’s arguably simply as spectacular.

The inventory’s listed on the Different Funding Market (AIM) and manufactures and distributes vinyl flooring. It sounds uninteresting, however the earnings it generates is something however.

Passive earnings

With a market-cap of £802m, James Halstead won’t be the UK’s greatest firm. However from a passive earnings perspective, there’s lots to love concerning the inventory. 

With the share price down 9% during the last 12 months, the dividend yield’s just below 4.5%. And the agency has elevated its dividend per share every year for 47 consecutive years.

Moreover, the latest will increase have been substantial. Over the past decade, the dividend’s grown by a median of round 5% a yr.

The agency sends out round 80% of its earnings as shareholder distributions, which raises the query, how sustainable is the dividend? However I believe that query might be answered.

Unit economics

It’d appear to be James Halstead’s dividend protection doesn’t provide traders a lot margin of security. However that is truly an indication of a enterprise with some extraordinarily engaging unit economics.

The corporate’s operations don’t use a lot in the way in which of mounted belongings. Because of this, there isn’t a lot must retain money throughout the enterprise for upkeep or substitute prices.

Over the past 12 months, the corporate’s generated £54m in working earnings. However with solely £49m in property, plant and tools to take care of, there isn’t a lot want for reinvestment.

Because of this, capital bills solely account for round 5% of working money move, leaving the remainder out there for shareholder distributions. That’s very engaging from a passive earnings perspective.

Dangers

James Halstead provides vinyl flooring for business properties, together with shops, workplaces, and services. But it surely’s exhausting to discern what the corporate’s long-term aggressive benefit is. Vinyl flooring isn’t one thing the agency has a patent on, for instance. And in its most up-to-date annual report, it identifies improvements from opponents as a possible menace.

One other danger administration identifies is the opportunity of a recession. Decrease development output may cut back demand for flooring, inflicting gross sales to fall and margins to contract.

Buyers ought to take these dangers critically. However 47 years of consecutive dividend will increase recommend the corporate’s extra resilient than it’d look. 

Shopping for shares

With the corporate distributing 8.5p per share during the last 12 months, traders on the lookout for £1,500 a yr in dividends will want 17,648 shares. And at at present’s costs that prices £34,360. That’s lots, however the firm’s seeking to continue to grow its shareholder returns into the long run.

With the inventory down 8% during the last 12 months, I believe it’s effectively value contemplating.