The Motley Fool

Are BHP Billiton plc, Segro plc and Hansteen Holdings plc super income stocks?

With BHP Billiton (LSE: BLT) slashing its dividend by around 75% last month, the diversified resources company may not appear to be a worthy income play. After all, it’s forecast to yield little over 2% next year and with the FTSE 100 yielding almost twice that, there appear to be better options available elsewhere for income-seeking investors.

However, with BHP forecast to more than double its bottom line next year, its profitability outlook appears to be rather positive. While dividends haven’t been covered by profit of late, BHP is expected to cover them 1.3 times next year and this therefore appears to be a relatively healthy level of shareholder payouts.

Furthermore, there’s scope for a significant rise in dividends in future years. That’s because the current low ebb of commodity prices is unlikely to last indefinitely, since for many producers it’s simply uneconomic to operate at such low price levels. And with demand from emerging economies in particular likely to increase in the coming years, the outlook for BHP’s profitability and its dividend appears to be bright.

Strong safety margin

Unlike BHP, Segro (LSE: SGRO) has a relatively high yield of 3.8%. This means that it offers a much more appealing income return at the present time and with the real estate investment trust (REIT) having upbeat growth prospects, dividends could rise at a brisk pace.

For example, Segro is forecast to record an increase in earnings of 3% this year, followed by further growth of 8% next year. This should mean that dividend growth outpaces inflation and with Segro having a sound track record of raising dividends, there seems to be a good chance of upbeat growth in shareholder payouts. That’s especially the case since dividends are due to be covered 1.2 times by profit next year.

Clearly, there are some concerns surrounding property prices in the UK and they may disappoint in future. With Segro trading on a price-to-book (P/B) ratio of 0.9, it seems to have a sufficient margin of safety to merit investment at the present time.

Raised dividends ahead?

Also offering a high income return right now is Hansteen Holdings (LSE: HSTN). It currently yields 5.4% and with dividends per share having increased in each of the last five years, it has a good track record of growth. In fact, dividends have risen at an annualised rate of 6.7% during the period, which means that there’s a good chance of further inflation-beating income rises in future.

As with Segro, there are concerns surrounding UK property prices and this could cause Hansteen’s share price to come under a degree of pressure. However with the company being well-diversified and trading on a P/B ratio of 0.95, it seems to offer a sufficiently wide margin of safety for purchase. And with dividends being covered 1.15 times by profit, there seems to be adequate headroom to raise dividends at a similar pace to profit growth over the medium term.

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Peter Stephens owns shares of BHP Billiton. The Motley Fool UK has recommended Hansteen Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.