Bus and train operator National Express Group (LSE: NEX) enjoyed a strong start to the year, with total revenue up 11% excluding exchange rate effects.
Although revenue was given a big boost by the start of a new rail operation in Germany in December, underlying revenue from existing operations was still up 4%, with growth in every division. Passenger numbers were higher too, with underlying growth of 3%.
According to the latest broker forecasts, adjusted earnings per share should rise 3.4% to 24.6p this year. This puts National Express on a 2016 forecast P/E of 13.5, which seems reasonable.
However, the firm’s dividend potential is of more interest, expected to rise by 7% to 12.1p this year, giving a forecast yield of 3.6%. This payout would cost £62m, so should be comfortably covered by the group’s targeted free cash flow of £100m.
Young upstart looks cheap
Shares in challenger bank OneSavings Bank (LSE: OSB) have fallen by 20% so far this year, but today’s trading statement suggests this stock could be an attractive buy.
The bank generated £627m of new business during the first quarter and acquired a further £131m of business. OneSavings confirmed that it expects to report a net interest margin of 3% for the full year, with a cost-to-income ratio of about 26%.
These figures are significantly better than any of the big banks can manage, making me wonder whether I should look at small banks as potential dividend buys. OneSaving’s decline this year has certainly made the stock cheap enough to be a dividend contender.
The stock now trades on a 2016 forecast P/E of 7.5, with a prospective yield of 3.4%. In 2017, earnings per share are expected to rise by 11%, while the dividend is expected to jump 22% to 11.7p per share, giving a potential yield of 4.1%.
As far as I can see, OneSavings is financially sound and profitable. The only risk with investing in such a small bank is that it may never achieve the scale needed for viable long-term future. At today’s price, I think that could be a risk worth taking.
Is insurance returning to growth?
Lloyds insurer Novae Group (LSE: NVA) insures assets such as ships, oil rigs and buildings against a wide range of risks.
It’s a complex business to understand, but Novae has been a very profitable investment in recent years. The shares have doubled since the start of 2013 while paying out generous dividends.
Novae currently trades on just 10-times forecast earnings and offers a prospective yield of 4.1%. The firm’s gross written premium rose by 9.8% to £282.8m during the first quarter, according an update today. That’s a welcome sign of growth in a sector where pricing has been under pressure. Quality players like Novae have actually been turning down sub-profitable business.
However, claims levels have also been low, which has allowed Novae to return fairly high levels of cash to shareholders each year. A costly string of claims, however, could put pressure on dividend growth, but this appears to be a well-run company in a sector that has seen a lot of takeover activity recently.
