With a number of FTSE 100 constituents offering bumper (although not necessarily sustainable) yields at the current time, it’s easy to get into the habit of confining your search for income candidates to the market’s top tier.
I think this would be a mistake. Today I’m taking a look at two companies that feature near the top of the FTSE 250 index and also — despite ongoing headwinds — offer safe and dependable payouts.
Expectations-beating
Shares in beverage pick Britvic (LSE: BVIC) were up strongly in early trading this morning as the Hemel Hempstead-based business reported an analyst expectations-beating 4.5% increase in revenue (to £733.2m) over the 28 weeks to 15 April. Organic revenue rose 2.8% over the interim period, with the firm’s Robinsons brand “back in growth“. Sales of Pepsi Max also continued to outperform its cola peers.
A 13.7% fall (to £33.3m) in profit after tax was partly due to the £21.6m in costs incurred from restructuring its supply chain.
Hailing a “strong first-half performance“, CEO Simon Litherland stated that consumer response to the recently introduced sugar tax had been “broadly as expected”.
Aside from today’s numbers and its bulging portfolio of brands (which also include Tango, J2O and Fruitshoot), Britvic’s shares still look reasonably priced at 14 times earnings for the current year. But that’s not all.
Raising its interim dividend by 9.7% this morning, the company continues to be an attractive pick for defensively-minded income investors. True, a forecast yield of 3.6% might not be as generous as that offered elsewhere, but the fact that it is likely to be covered almost twice by profits suggests it looks very secure going forward.
While it will take time to ascertain the full impact of the Soft Drink Industry Levy, today’s update is clearly encouraging. As such, I continue to remain bullish on Britvic and indeed, on a number of other companies operating in the industry.
Rise in revenue
Another FTSE 250 company releasing an update to the market this morning was spread-betting firm IG Group (LSE: IGG).
Despite the introduction of regulations designed to protect UK and EU clients (which the company reiterated its support for), business continues to be good at the £3.3bn cap. Net trading revenue for 2017/18 is now likely to come in around £565m — a rise of 15% on that achieved in the previous year. Operating expenses are also expected to be in line with previous guidance at roughly £254m.
Although predicting that revenue in the next financial year will be lower than FY18, IG “expects to return to growth” soon afterward, supported by an increase in the proportion of its UK and EU leveraged revenue coming from clients categorised as “professional”. Although regulators continue to come down hard on unlicensed operators and misleading advertising, it went on to state that it does not expect any of these actions “will have any significant impact on its business”. In addition to investing in new products and platform development, the company also remarked on acquiring new licences “to operate in jurisdictions in selected emerging markets“.
Trading on 15 times earnings before today, IG’s stock may not be quite the bargain it was towards the end of 2016, but I think this valuation can still be easily justified by its market-leading position, solid balance sheet and reliably high returns on capital. With a 4.3% yield pencilled in for 2018/19, it’s also a great option for dividend hunters.
