The Motley Fool

Should You Buy Dividend Dynamos J Sainsbury plc, Galliford Try plc & BBA Aviation plc?

Today I am looking at the investment potential of three London-quoted heavyweights.

Engineer a fortune

Despite the release of disappointing British construction data today — output during November slumped to a seven-month nadir of 55.3 — I believe builder Galliford Try (LSE: GFRD) remains a sterling stock pick.

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The Uxbridge firm has a terrific record of chalking up top-quality contracts across the building industry, and orders at Galliford Try’s Housebuilding and Construction arms surged 40% and 27% respectively in the year to June. And since then even more business has rolled through the doors.

With Galliford Try expected to enjoy another double-digit earnings uptick in the 12 months to June 2016 — this time by a hefty 11% — last year’s dividend of 68p per share is anticipated to rise to 79.9p, yielding a brilliant 5.6%. And I expect shareholder returns to continue rising as UK economic growth clicks higher.

Dividends set for take off?

While corporate jet activity in the US has remained grounded in recent times, I reckon an improving economy across the Atlantic could send more planes into the air from next year and beyond, a promising sign for aviation services provider BBA Aviation (LSE: BBA).

Indeed, the London-based firm underlined its long-term confidence in the business jet market during the autumn through the $2.07bn acquisition of Landmark Aviation. The move significantly expands BBA Aviation’s US footprint, and boosts its global terminal base by more than a third.

Despite an anticipated 4% earnings slide in 2015, BBA Aviation is expected to increase the dividend from 11.5 US cents per share in 2014 to 11.8 cents in 2015, yielding a sizeable 4.4%. And an anticipated 8% bottom-line bounce in 2016 is expected to push the payment to 12.3 cents, yielding 4.6%.

Keep shopping around

Improving sales data over at Sainsbury’s (LSE: SBRY) has provided trader appetite with a solid shot in the arm in recent weeks. Retail researcher Kantar Worldpanel’s latest release showed till rolls at Sainsbury’s improve 1.5% during the 12 weeks to November 8, the only rise amongst Britain’s ‘Big Four’ supermarkets and nudging its market share 20 basis points higher, to 16.6%.

But investors should learn the lessons of Tesco (LSE: TSCO) a year ago, the Cheshunt firm having also enjoyed a brief sales uptick as massive discounting paid off. But revenues turned south again shortly afterwards and the firm’s share now stands at 27.9%, slipping from 28.7% a year ago.

While Sainsbury’s recent revenues revival should of course be welcomed, investors should not lose sight of the rampant march of Aldi and Lidl. Indeed, Kantar noted that “the discounters show no sign of stopping, and with plans to open hundreds of stores between them, they’ll noticeably widen their reach to the British population.”

As a result, I believe further earnings troubles can be expected at Sainsbury’s as the sector’s ‘price wars’ intensify. The London firm is already expected to cut last year’s dividend of 13.2p per share to 10.7p in the year to March 2017, and although a chunky 4.2% yield may be tempting, I believe the murky profits picture over at Sainsbury’s makes the retailer a risk too far presently.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended BBA Aviation. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.