It is not often that I write entire articles about a single stock twice in one week. But CMC Markets (LSE: CMCX) is an exception this week. I have followed the stock with some interest for some time for a few reasons. The FTSE 250 trading platform had a double-digit dividend yield and was also dirt-cheap. As trading activity boomed during the lockdowns, the company also did quite well. I liked it enough to buy it.
Then this week, two pieces of news followed, that could change perspective on the stock. The first was that it could split in two, which I discussed in my first article on the stock earlier this week. This was followed by a cut in its dividends, which really made me sit up and take notice again.
CMC cuts dividends as performance weakens
One of the biggest draws of the FTSE 250 stock for me has been its high dividend yield, above 12%. But a drop in performance led it to reduce its interim dividend as well. For the half-year ending 30 September, the company’s pre-tax profits fell by a huge 74%. In line with this, it reduced its dividend payout by 62% as well.
Its share price has understandably fallen by more than 8% in the past week. It is now down to levels last seen in June 2020. I’m now thinking this could be a good time to add more of the stock to my portfolio. Here’s why.
Even after the cut in its interim dividend from 9.2p last year to 3.5p now, the stock’s dividend yield is still a huge 10.4%. This still keeps it among the set of FTSE 250 stocks with the highest dividend yields. Moreover, its results look disastrous only in comparison to last year. But recall that last year was as atypical as they come.
The silver linings for the FTSE 250 stock
Quite helpfully, CMC Markets has also presented a comparison with 2019 in its latest release, which gives some perspective and is also encouraging to me. Compared to the first-half of 2019, its pre-tax profits are still up by a whole 20%. And its dividend per share is higher by 23%.
Its share price is still way higher than it was back then, though. It has around doubled, in fact. This could indicate that the stock is still quite pricey. But one look at the price-to-earnings (P/E) ratio suggests otherwise to me. According to my quick estimates, after the latest results it is at around six times, which is fairly low.
My takeaway
In sum, I think the stock is still quite competitive both in terms of its price and its dividends. The only challenge I see is that there is some uncertainty because of its proposed split. Some analysts believe that it will be good for the stock, but that remains to be seen. In the meantime, its share price is struggling. All in all though, I would still buy the stock.
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Manika Premsingh owns shares of CMC Markets. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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