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Should I buy this dividend stock with its 4% yield?

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One dividend stock I’m considering adding to my holdings is Ramsdens Holdings (LSE: RFX). Is now a good time to buy some of the shares, with a view to boosting my passive income stream?

Financial services and retail

Ramsdens is a diverse business, operating in four core segments. These are foreign currency exchange, pawnbroking loans, dealing in precious metals, and selling new and second-hand jewellery.

Let’s start by taking a look at the share price activity. As I write, the shares are trading for 220p. At this time last year, they were trading for 193p, which is a 13% increase over a 12-month period.

Pros and cons

The firm’s diverse offering is a plus point and a key characteristic I look for in any dividend stock. Through its four business areas, it is able to protect itself from volatility to a degree. One thriving area of the business could offset another that may be struggling. Furthermore, Ramsdens is looking to grow its store presence as well as overhaul its online offering, which is now adding real value to the bottom line and boosting performance.

Next, the pawnbroking and retailing businesses are in a position to thrive due to the current cost-of-living crisis. When consumer income comes under pressure due to macroeconomic factors, these types of businesses do well.

I believe my above point is supported by Ramsdens’ latest earnings report, a half-year trading statement released in June for the six months ended 31 March. Revenue jumped up by nearly 70% compared to the same period last year and pre-tax profit increased by 33%. In fact, all four segments saw double-digit growth in performance and the business opened nine new locations.

As with any dividend stock, I’m interested in the level of return. Ramsdens’ dividend yield of 4.3% is enticing. It hiked its interim dividend by 22%, which is an indicator as to how well the business is doing. However, I am aware that dividends are never guaranteed.

From a bearish perspective, tightening regulation in the pawnbroking sector is a looming spectre that could impact Ramsdens’ business negatively. A change in regulation could hinder its level of returns overall as pawnbroking is one of its most lucrative segments.

Next, Ramsdens could experience a short-term spike in performance like now, due to the current cost-of-living crisis. If the economy were to stabilise, it could experience decreasing numbers of customers using its services. This could hinder any passive income I’m hoping to make.

A dividend stock I would buy

After reviewing the pros and cons, I’ve decided I would be willing to buy Ramsdens shares for my holdings if I had the spare cash to invest.

I believe the diversified offering, growing market presence, and passive income opportunity are too good to miss out on right now. Plus, the shares look good value for money too right now on a price-to-earnings ratio of nine. I believe Ramsdens could be a great dividend stock for me, providing me with consistent and stable returns.

The post Should I buy this dividend stock with its 4% yield? appeared first on The Motley Fool UK.

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Sumayya Mansoor has no position in any of the shares mentioned. 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.