DFS worth holding for the generous dividend

It is tempting to write "sofa, so good" as a description of DFS Furniture's half-year results yesterday. It has been able to wring an extra 3 per cent in sales from its existing stores compared with a year ago, and that confounded those investors who are convinced the UK economy is teetering on the edge of a slide in consumer spending.

The economics don't look good, it is true, so those buying DFS shares now may find they have further to fall. Bears saw worrying signs in the news that trading in the last 11 weeks has been "volatile". But DFS is a solid company aimed at the cheap and cheerful end of the market and it should ride out any downturn. It made a profit of £26.1m in the six months to 1 February, with growth being driven by new stores. It hopes to increase its current tally of 67 to about 100, with 10-15 opening each year. Operating margins have drifted higher, not least because of extra staff costs and higher rents. But there has also been investment in a new distribution centre, and this will reap dividends.

Talking of dividends, the presence on the share register of the founder and executive chairman, Graham Kirkham, can give confidence that the company will maintain its generous payouts. The shares, up 3p to 351.5p yesterday, have a dividend yield of 7 per cent and the company has a good record of returning surplus cash to shareholders through special dividends. It may be that the economic climate dictates the next one of these is some way off, but the company is also considering starting a programme of share buy-backs that might give the share price some protection.

DFS's efforts to show a younger face, through fresher design and poppy adverts, show it remains strategically sound. Its shares are worth holding for the dividend.