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A 6%+ yield but down 24%! Time for me to buy more of this hidden FTSE 250 gem?

Chalkboard representation of risk versus reward on a pair of scales
Image source: Getty Images

Bank of Georgia Group (LSE: BGEO) has been one of the unsung heroes of the FTSE 250. Up 269% in three years, it’s the joint top-performing stock in the index over this period (along with Breedon Group).

After following the firm’s progress for some time, I finally invested earlier this year. The shares went up almost immediately, which was nice to see.

However, the bank stock has taken a big tumble recently. It’s down 24% since the start of May, putting me in the red.

Should I buy more of this sliding FTSE 250 stock, or stay away? Let’s take a look.

What is Bank of Georgia?

The company is one of the largest banks in Georgia and Armenia, two emerging nations whose respective economies grew 7.5% and 9.4% in 2023. They’re forecast to grow 5% and 6.2% in 2024.

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A vibrant economy is obviously vital for a domestic lender, and the growth of Georgia has been very strong for years now.

Tourism is booming and the capital, Tbilisi, is regularly cited as among the world’s best cities in which to work remotely.

Last year, the bank’s adjusted profits rose 21.4%, while its loan portfolio has now expanded at a compound annual growth rate of 30.7% since 2018.

First thing to check

When a dividend stock suddenly drops, I always check if it’s gone ‘ex-dividend’. This refers to the period after a dividend has been declared by a company but not yet paid out to shareholders.

During this time, if I buy shares, I’m not entitled to receive the next dividend payment. In other words, the stock trades ex-dividend, or ‘without dividend’.

In the case of Bank of Georgia though, this hasn’t happened. The stock is due to go ex-dividend on 4 July before a payment on 19 July.

A controversial bill

In fact, this sharp sell-off appears directly related to mass street protests over a controversial ‘foreign agent’ bill that passed its final reading in Georgia’s parliament on 14 May.

It resembles a law in Russia used by the Kremlin. So this has sparked concerns over government suppression of its opponents.

While the bank’s operations won’t be directly impacted by the proposed law, it may lead to a decline in foreign investment in Georgia’s economy. Obviously, that wouldn’t be ideal for growth.

Worryingly, the EU has said this new law could harm Georgia’s bid for membership. It was only granted candidate status in December 2023.

So this is all a bit concerning, though the bill hasn’t become law yet and there are parliamentary elections due later this year. More volatility could be ahead.

My move

After the fall, the stock is trading on a dirt cheap price-to-earnings (P/E) ratio of 4.5. And the forward-looking dividend yield is 6.8%, rising to an attractive 7.4% in 2025.

The bank is due to report its Q1 2024 earnings tomorrow (17 May). I’ll be interested to hear management’s views on recent developments.

Depending on what is said, the stock could be catapulted one way or the other.

My strategy is to sit tight and see how things develop in the upcoming elections. I may get a far better price to buy more shares, with a higher dividend yield. Meanwhile, I’ll focus on other stocks.

The post A 6%+ yield but down 24%! Time for me to buy more of this hidden FTSE 250 gem? appeared first on The Motley Fool UK.

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Ben McPoland has positions in Bank Of Georgia Group Plc. 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.

Motley Fool UK 2024