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A big dividend yield always catches my eye. But there’s one stock in the FTSE 250 index that’s been grabbing my attention more than most.
Monster dividends
The mid-cap in question is high-performance polymer specialist Victrex (LSE: VCT). The products it manufactures are used to replace metals or standard plastics and can withstand high temperatures and aggressive chemicals. They’re also light and wear incredibly well, hence their popularity in, to give just two examples, the aerospace and automotive industries.
Now, this is actually a stock I held many moons ago. At the time, the share price was appreciating nicely. The dividend stream was also far from unattractive. But the yield back then was nowhere near where it stands today.
Shares in Victrex currently come with a massive forecast yield of 8.3% for FY26 (which began at the start of October). The average in the index is around 3.4%.
I can also pick up a slice of this company for a little less than 16 times forward earnings. That’s not screamingly cheap but it’s a good bit lower than the firm’s five-year average P/E of 22. If the firm prospers, considering it now could be a lucrative move.
Sinking share price
But hold on! The dividend yield is so high for a reason. Victrex has been struggling to grow revenue and profit for a while. Margins have been squeezed by rising costs too. To further unsettle things, CEO Jakob Sigurdsson announced in July that he intends to retire.
A recovery in fortunes looks some way off. Broker Jefferies recently cut its rating on the stock due to persistent weakness in medical product volumes.
As might be expected, none of this has done the share price any good at all. It’s now down by over a third in 2025 alone, pushing the yield ever upwards.
The performance for longer-term investors has been even more woeful. We’re talking about a drop of 63% in five years!
Red flags!
Looking under the bonnet, there are a few other things I don’t like.
For one, the total dividend’s been stuck at 59.6p for a few years now. That’s understandable — raising the payout during tough times is a risky strategy for management.
But it’s frustrating for existing holders and indicative of a business that’s treading water. Call me picky but I like to see dividends rising every (or nearly every) year. This year’s payout isn’t even expected to be covered by profit!
I’m not seeing much in the way of director buying either, at least in 2025. In fact, only about £30,000 worth’s been snapped up.
At times like this, investors would hope to see those in the know showing their confidence and using any spare cash to increase their stakes. Because things will bounce back, right. Hmmm.
Better opportunities elsewhere
Perhaps I’m being too harsh. By contrast to some businesses, Victrex’s balance sheet looks fairly healthy. Even so, it’s worth noting that this company went from having a net cash position to a net debt position in 2023.
But one of the brilliant things about the UK stock market is that there’s no shortage of (better) dividend stocks out there. For this reason alone, there’s no danger of me returning to this laggard when it comes to scratching my passive income itch.
