Today I’ll be discussing the outlook for utilities giant Pennon Group, civil engineering group Kier, and muti-utility supplier Telecom Plus. Is the chunky dividend income offered by these three FTSE 250 companies simply too good to miss?
Let the dividends flow
Water and waste management firm Pennon Group (LSE: PNN) has performed well this year with its shares gaining 14% over the last 12 months. No doubt, existing stakeholders will be over the moon, but what about new investors, should they be concerned about a higher share price resulting in lower dividend yields? Of course not. The owner of South West Water and waste management business Viridor has been rewarding loyal shareholders with improved dividend payouts since 2007, and I expect this to continue long into the future.
The Exeter-based group is expected to lift the dividend payout to 36.05p per share for the full year to March 2017, compared to the 33.58p paid out last year, with the expectation of a further hike to 38.28p forecast for FY2018. This would leave the shares offering a respectable dividend yield of 4% for this year, followed by an even healthier 4.3% for the year to March 2018. I see Pennon Group as a credible alternative to blue chip peers United Utilities and Severn Trent for those seeking a reliable low-risk progressive dividend.
Best of both
Engineering firm Kier Group (LSE: KIE) saw its share price drop below the £10 level for the first time since 2013 in the aftermath of the Brexit vote, but savvy investors quickly stepped in to scoop up the oversold stock and have pushed the price back up above pre-Brexit levels. So is it too late to buy a slice of the Bedfordshire-based engineering firm, or do the shares offer potential for even further growth?
Kier has yet to announce its results for the year ended last June, but analysts expect the company to reveal a solid 9% rise in full-year earnings, with a further 6% improvement forecast for the year to June 2017. At current levels the shares trade on an attractive valuation with a forward price-to-earnings ratio of 11 for the current financial year, coupled with a tempting dividend yield in excess of 5%. At present levels Kier looks undervalued and provides attractions for both growth investors and income seekers alike.
Despite the name, utility supplier Telecom Plus (LSE: TEP) provides a whole range of services to both business and residential customers including gas, electricity, broadband, mobile and of course landline telephony. Revenue and earnings growth has been relentless since the company was founded in 1996, with the share price reaching highs just shy of 2,000p at the end of 2013.
But all good things must come to an end, and although profits have continued to rise in recent years, the pace of growth has slowed to single digits. Today the shares can be snapped up at a more modest 1,060p, and offer a rising dividend yielding approaching 5% at today’s prices. Telecom Plus is certainly worth a closer look for investors seeking a proven track record of reliable dividend growth.
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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.