Are BT Group plc and this 5% dividend stock bargains of the year?

BT Group plc (LON: BT-A) is now yielding well over 6% a year and Harvey Jones highlights another bargain stock with an equally generous dividend.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

These are glory days for income seekers with the FTSE 100 trading on a yield of 4.1%, while these two dividend payers offer an even more generous yield than that.

Bad call

Telecoms giant BT Group (LSE: BT-A) currently pays an astonishing 6.47% income with cover of 1.8, but as so often is the case, the sky-high yield flags up underlying problems. The group’s share price peaked at 500p in December 2015 but trades at just 237p today.

The rot started with irregularities at its Italian business and only worsened when the scandal turned out to be worse than originally thought (don’t they always?). As my Foolish colleague Kevin Godbold points out here, BT continues to struggle with a £9bn debt mountain, stiff industry competition, and the need to constantly restructure to drive down costs and comply with regulator Ofcom’s demands.

February’s figures showed a 3% drop in revenues and adjusted earnings across the three months to 31 December amid weaker trading in its Global Services division, and falling monthly revenues from mobile users. 

Italian job

This leaves the group trading at a forecast valuation of just 8.5 times earnings, deep into bargain territory. Investors should not bank on a spectacular comeback as earnings per share (EPS) are forecast to grow just 3% in the year to 31 March 2019, and 1% the year after. Competition is likely to intensify, rather than weaken. By then, the yield is forecast to hit 6.9%, provided it is sustainable.

Union approval to close its final salary scheme should offer some relief and unlike its telecoms rivals, BT should benefit from higher interest rates, which will shrink its £9bn pension deficit. A fix for its Italian problems and EE synergies could also boost growth. All of this may take time, but while you wait, there is that dividend.

Steady Eddie

Here’s a much smaller stock that is also trading at a bargain valuation, and with a juicy dividend to match. Eddie Stobart Logistics (LSE: ESL) has just announced full-year results for the 12 months to 30 November 2017, with a headline 9.4% increase in group revenues to £623.9m, and underlying EBIT up 17.4% to £48.5m, although operating profit fell by 1% to £26.6m.

The £450m logistics group has had a bumpy ride lately, its share price falling 20% in the last three months, with only the slightest of recoveries on today’s announcement. Yet chief executive Alex Laffey hailed “significant progress” in its first year as an AIM-listed stock, with strong underlying revenue growth, £41m of existing contracts renewed and £89m of new volume. It also completed acquisitions of iForce, Speedy Freight and Logistic People.

Rolling, rolling

The board proposed a final dividend of 4.4p, making a total of 5.8p for the full year, in line with its progressive dividend policy. 

The stock currently offers a generous forecast yield of 5.3%, with cover of 1.8. Fellow Fool Jack Tang has previously highlighted its low valuation and attractive yield. Its EPS are forecast to rise an impressive 20% over the year to 30 November 2018, then another 13% the year after that, when the dividend will hit 5.9%. Eddie Stobart looks set to carry on trucking.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »