Public transport provider Go-Ahead (LSE: GOG) has released an upbeat first quarter trading statement. It shows that it’s performing in line with expectations and that it remains a strong income stock. As such, it could be worth buying right now before investor demand suppresses its dividend yield.
Go-Ahead’s regional Bus revenue grew by 2% in the first quarter of the year, with passenger numbers up by 0.5% versus the same period of the previous year. This is a continuation of the growth rate in the second half of last year and shows that Go-Ahead continues to perform well. That’s despite economic challenges in the north east, with Go-Ahead’s revenue being 3% higher if that region is excluded from the results.
In Go-Ahead’s London Bus division, the rate of growth has slowed. This was expected, but Go-Ahead has nevertheless been able to record a rise in revenue of 4%. And with its operations in Singapore now up and running, Go-Ahead is making encouraging progress in its wider Bus division.
Similarly, Go-Ahead’s Rail performance has been strong. Its Southeastern and London Midland franchises have performed well, recording passenger revenue increases of 3.5% and 8% respectively.
However, its Govia Thameslink (GTR) services continue to be negatively affected by strike action. This contributed to a fall in passenger revenue of 3% during the period and a reduction in passenger journeys of 0.5%. Furthermore, the GTR services are suffering from narrower margins as a result of additional resources being invested to support service delivery. Despite this, Go-Ahead continues to expect margins for the life of the contract to be in line with expectations.
The yield’s the thing
Go-Ahead currently yields 4.8%, which is 120 basis points higher than the FTSE 100’s yield. At a time when many investors are seeking out higher yielding stocks due to rising inflation and a loose monetary policy, the popularity of Go-Ahead’s yield could increase over the medium term. That’s especially the case since it’s performing well as a business and its dividend is covered twice by profit. This shows that there’s scope for a brisk dividend rise in future years – even if Go-Ahead’s profitability fails to rise rapidly.
However, Go-Ahead’s challenges with the GTR franchise may make it less resilient than popular income stock National Grid (LSE: NG). The utility company is perhaps one of the most robust higher yielding stocks in the FTSE 100, with its yield of 4.2% being highly reliable and consistent. Furthermore, National Grid’s dividends are well-covered by profit at 1.4 times and they provide a degree of protection against inflation. That’s due to National Grid aiming to raise shareholder payouts in line with inflation over the medium term.
So, while National Grid may be a safer income option than Go-Ahead, the latter remains a highly enticing dividend stock. Therefore, its yield may fall in the coming months as investor demand rises for higher quality income stocks.
