As an enthusiastic income investor, dividend-paying stocks are my bread and butter. So a large section of my passive income portfolio includes reliable, high-yielding shares like TP ICAP (LSE:TCAP).
With a yield that consistently hovers between 5%-7%, it should appeal to investors with a similar mindset.
However, the share price shocked me this month when it fell 9.6% from a recent high — almost enough to qualify as a correction. That forced me to ask: could this be a long-term issue, or a chance to buy more shares at a bargain?
A strong business with one weak spot
TP ICAP connects buyers and sellers in global financial, energy and commodities markets. It earns revenue mainly from arranging trades and providing market data. Its Global Broking division remains the star, but the latest results showed why even the steadiest stocks still face risks.
In the six months to 30 June, group revenue increased 8% at constant exchange rates to £1.3bn, while adjusted EBIT rose 9% to £196m. Yet in its Energy & Commodities division, adjusted EBIT dropped to £12m from £27m.
The company cited disruption to physical oil flows that reduced oil-futures activity (and related hedging) during the second quarter. Since oil and related products represent more than half of divisional revenue, this weakness matters.
But the dividend appeal, for now, remains unaffected. These numbers are hard to ignore:
- Yield: 5%.
- Payouts: 26 years uninterrupted.
- Cash coverage: 2.93 times.
- Payout ratio: 66.14%.
The fact that the board increased the interim dividend by 8% (to 5.6p per share) speaks volumes. That kind of shareholder dedication is what drives my decisions when picking income stocks.
Price, income and risk
There are several ways to invest. Some investors try to catch prices when they’re low, while others prefer holding quality companies through market cycles.
For a long-term portfolio, I think the second approach is practical. Buying reliable stocks and allowing dividends and earnings to compound can be more reliable than repeatedly trying to time the market.
That is relevant for dividend investors. Securing an investment before the ex-dividend date locks in that income, and can matter more than waiting for a perfect dip.
At the same time, buying solely for an approaching payout isn’t ideal – the share price could adjust when the dividend goes ex, so assessing risk remains the most important task.
My view
With TP ICAP, the key risk to consider is whether the oil-related weakness persists. A prolonged reduction in trading activity could pressure profits and increase the risk of a dividend cut. Therefore, I’d keep a close eye on cash generation, earnings cover and management guidance before buying simply because the price is low.
On the plus side, management still expects full-year adjusted EBIT to be in line with market expectations. Global Broking was encouraging in the latest results, with revenue up 11% and adjusted EBIT up 22%.
Plus, the company has announced a new £30m share buyback. With that in mind, I don’t think this dip signals any serious issue.
For investors comfortable with cyclical trading income, I think now’s as good a time as any to consider TP ICAP shares. However, for those keen on something more established and stable, the FTSE 100 is where to look – and one share in particular caught my eye lately…
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Mark Hartley owns shares in TP ICAP.
