According to a recent research report put together by analysts at investment bank Morgan Stanley, the UK stock market is cheaper today than it has been since the turn of the century.
The analysts believe short-term political uncertainty is putting investors off, although they also go on note as saying this could be a tremendous opportunity for long-term investors.
I agree with Morgan’s view. Yes, the outlook for the UK economy is uncertain, but there are plenty of other companies in the FTSE 250 with an international focus, such as BBA Aviation (LSE: BBA) for example.
British success story
BBA is a great British success story. Founded in 1897 and public since 1964, today the company is one of the largest providers of aviation support services globally.
This business isn’t glamorous, but it’s essential. The group is separated into two divisions, Flight Support, and Aftermarket Services, which keep planes in the sky and heading in the right direction. And rather than focus on the general aviation market, BBA’s primary business is managing private jets, which I believe gives the company an edge over others in the sector.
Over the years, BBA has built itself up through a combination of organic growth and bolt-on acquisitions, the latest of which is Firstmark Corp, an aftermarket service provider, for a consideration of $97m.
In my mind, BBA’s niche but essential business gives it great dividend credentials. Organic growth topped up with select acquisitions should support dividend growth. Meanwhile, the essential nature of the business should ensure no sudden drop in income, which is usually why companies are forced to slash distributions.
City analysts have the company paying out $0.14 per share for 2018, rising to $0.15 for 2019. These estimates give a dividend yield of 3.7%, which isn’t that exciting. However, it’s the longevity of the payout that excites me. For the reasons listed above, I believe you can rely on BBA for income for many decades to come.
Another FTSE 250 income stock that I believe has exciting long-term prospects is Bodycote (LSE: BOY).
Once again, Bodycote is not a household name, but it’s good at what it does, namely providing thermal processing services in countries around the world. These processes are essential in manufacturing industries such as aerospace and defence, where precision and reliability counts for everything.
Bodycote’s position in the industry has helped the company grow net profit by 52% over the past six years. Analysts are expecting earnings per share (EPS) growth of 13% this year, followed by an increase of 6% next year.
As earnings have grown steadily over the past decade, management has rewarded shareholders with steady dividend growth. Since 2012, the group’s dividend payout has increased at a compound annual growth rate of 7.2%.
Unfortunately, like BBA, the dividend yield disappoints because shares in Bodycote only yield 2.2% at the time of writing. Nevertheless, it’s the company’s established reputation and steady growth that gets me excited about its prospects.
It seems management is also optimistic about what the future holds. CEO Stephen Harris recently made his first acquisition of the company’s shares, spending £100,000 to snap up just over 11,000 shares.
Bodycote is a stock to buy today and hold for years, in my opinion.