Is the Kier (LON:KIE) share price too cheap?

Screening for companies with strong balance sheets and solid dividend yields can be a quick and simple way of identifying potentially undervalued investment opportunities. One way of doing this is to include stocks that have a Piotroski F-Score of 8 or 9 and a dividend yield of at least, say, 3%.

Take Kier (LON:KIE), for example, which is a speculative contrarian company in the Industrials sector. Kier (LON:KIE) pays out a rolling 8.58% of its share price in dividend payments. 

Does Kier (LON:KIE) pass our F-Score test?

Stockopedia applies algorithms to its stream of financial data to automatically calculate the Piotroski F-Score for every stock on the market. It shows that Kier (LON:KIE) scores 8 out of a possible 9. By investing in companies scoring 8 or 9 by these measures, Piotroski showed that, over a 20-year test period through to 1996, the return earned by a value-focused investor could be increased by an astounding 7.5% each year. Even better, it suggests that the company is well-placed to continue to pay out attractive dividends.

Here is a breakdown of Kier's F-Score:

Prospects for Kier (LON:KIE)

Kier has had a tough time ever since a profit warning in November 2018 wiped 30% off its share price. The group was exposed to the collapse of Carillion, both because they were collaborating on projects together and the fact that the latter's collapse caused banks to become much more strict with lending terms to the construction sector.

As a result, Kier was forced into an emergency equity raise of £264m that went on reducing its £624m debt pile - hardly the sign of a safe company. To its credit, the company took this opportunity to slash its (historically poorly covered) dividend payment from 67.8p to 31.2p. This gives the company better cash flow and a conservative dividend payment that still represents a forecast yield of 8.05%. 

What does this mean for potential investors?

Kier has an F-Score that suggests it could be a promising investment candidate worthy of further research - but it's only a first step. Higher F-Score stocks can still have weaknesses and may trade at premium prices compared to other stocks. We've identified some areas of concern with Kier that you can find out about here.