A stock that’s raised its annual dividend for 49 years in a row has got to be a good passive income pick, right? Well, it can depend on the dividend yield. So what if I say there’s such a stock out there whose share price has dropped and pushed the forecast yield up to 5.5%?

That’s the picture I’m seeing when I look at James Halstead (LSE: JHD), after a 38% share price fall in the past five years. But a fallen share price isn’t a good thing. It depends on the reason, and whether it’s something that could halt those dividend rises.

Anything wrong?

James Halstead is in the thoroughly unexciting business of industrial flooring. And it looks like it’s something of a market leader. With some of its products used in hospitals to the exclusion of competitors, I see a bit of a defensive moat.

The recent share price weakness has come since early 2022. That’s been a period of high inflation and interest rates, and a very shaky economic outlook. For the year ended June 2024, the company reported a 9.4% fall in revenue.

But that softened to a bottom-line 2% fall in earnings per share (EPS) to 10p. And it was still enough to cover the 8.5p full-year dividend. It’s not strong cover, but in a business downturn, seeing anything positive is good.

The company was rightly proud of its “unbroken chain of dividend payment increases from 1974.”

Looking up

By the current financial year’s halfway point at 31 December 2024, we saw a 4.7% decline in revenue from the same period a year previously. That’s slowing, and EPS actually rose to 5p in the half. The interim dividend? Up again, by 10% to a record 2.75p per share. We could be on for 50 years.

Executive Chairman Mark Halstead spoke of a “backdrop of difficult markets” and “short-term confidence weakness in Europe.” But he also reported “raised profits underpinned by improved margins and reductions in overheads.“

Oh, and note his name. I do like it when a company’s founding family is still at the helm.

Risky business?

A few things mean caution is needed here. We’re looking at a forecast price-to-earnings (P/E) multiple of 15, which isn’t an obviously screaming cheap valuation. And with the company listed on the Alternative Investment Market (AIM), it doesn’t attract many analysts.

In fact, I can find only two offering recommendations, one Buy and one Hold. Still, there’s an average share price target on the stock of 300p. At the time of writing, James Halstead shares are selling for 159p. That’s a healthy growth expectation.

Dividend cover is a bit thin. And if it’s not enough one year to lift the dividend yet again, I could see a share price slump. And we’re not out of the economic woods yet.

On balance, I’d say the revenue and share price weakness has been due to cyclical economic issues. And I see no fundamental problem with the company itself. It’s on my list of passive income stocks to consider for my ISA.