18 months ago I probably wouldn’t have called Warpaint London (LSE:W7L) dividend stock. After rising almost 1,000% over the past five years, it was trading at a high near 600p. Therefore, the dividend rate was quite low and amounted to 2%.

However, after dropping from 70% to 175p, Warpaint London is now yielding 7.4%, which is quite an eye-catching figure. Moreover, brokers are bullish on the stock, with the average 12-month target being 100% higher.

So is this worth considering for passive income in May? Here are my thoughts.

Things to like

Warpaint London sells affordable cosmetics through brands such as Technician AND W7 (61% of total group revenues). At the time of writing it has a market capitalization of £141m, which puts it in petite cap territory.

Apart from the dividend yield, there are many things that look attractive here. First, the company sells products in TescoBoots and Superdrug, as well as in Europe, USA (Walmart) and elsewhere. Last year it introduced W7 in 200 Tigota stores in Italy.

Therefore, its revenues are internationally diversified and it has various leading retail partners on board. The balance sheet is also in good shape, with no debt. This is of course critical from the point of view of dividend stability.

One more thing I like: the business is run by the founders. Co-founders Samuel Bazini (CEO) and Eoin Macleod (MD) have been in the beauty industry for decades.

Finally, the forward price-to-earnings ratio (P/E) here is just 9, which seems very low. For context: in September 2024 it was the 25th.

As such, I understand why the three City brokers following the stock believe it is undervalued. Their average price target is 100% above current levels. On April 29, Berenberg Bank lowered its target from 510p to 470p. But that’s still more or less 168% above the current 175p!

In wars

So why did shares fall? The main culprit is slowing growth. Revenues rose just 3% last year to £105.1m (compared to 40% revenue growth in 2023). Bodycare, its massive client Technician brand, went into administration, resulting in a loss of sales worth £3.3 million.

While gross margin increased by 140 basis points to 42.6%, pre-tax profit fell by 24% to £18.1 million. US tariffs on goods produced in China have caused a huge headache.

2025 has been a challenging year for Warpaint, against a backdrop of challenging macroeconomic conditions and reduced consumer confidence, both in the UK and in our other markets.

Warpaint London.

Unfortunately, the cosmetics company said challenging trading conditions continued into the first quarter of 2026. However, management believes the situation may improve in the second half.

Of course, the biggest risk is rising inflation and the never-ending cost of living crisis.

Are the crops sustainable?

Last year’s dividend of 13p was covered by just 1.28 times adjusted earnings per share of 16.7p. Therefore, given the continued weakness in 2026, I would not bet on a 7.4% yield.

That said, the company remains profitable, so I’d be surprised if the payout were completely phased out.

Moreover, the customs situation in the US has eased and Warpaint continues to expand its presence in recent international markets such as Australia and New Zealand.

All things considered, the stock looks undervalued to me, which makes it worth considering as a low-cost small-cap recovery play. Passive income will be an added bonus.