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Why I’d pounce on this evolving company’s shares today and lock in the 4% yield

The immediate attraction of smart infrastructure solutions company Costain Group (LSE: COST), for me, is its low-looking price-to-earnings rating around 10 and its high-looking dividend yield close to 4%.

But digging a little deeper, the firm has performed well over the past four years or so with generally rising revenue, normalised earnings and dividends. If you are comfortable with the inevitable cyclicality inherent in the firm’s operations, I think Costain could be a good one to tuck away.

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At the heart of UK infrastructure

Operations revolve around infrastructure in the UK’s energy, water and transportation sectors. The company aims to serve “blue-chip” clients “whose major spending plans are underpinned by strategic national needs, regulatory commitments or essential maintenance requirements.” I think it’s a good idea that the firm has a decent grasp of where the money will come from to pay for its services and why. The knowledge should help to keep operations focused and away from the temptation to stray into non-core contracts that could dissipate management energy.

The firm explains in today’s full-year results report that it aims to execute its strategy by offering a range of “innovative” services across the whole lifecycle of its clients’ assets by “integrating complex delivery, consultancy, technology and asset optimisation services.”  So, we’ll find Costain engineers, technicians, craftspeople and labourers working on the railways, highways, power infrastructure, oil & gas installations, water plants and nuclear power stations up and down the country. And they’ll be backed up with office-based engineers, draughtsmen (and women etc.), and contract management professionals.

Today’s figures look encouraging. Although revenue eased back by almost 14%, underlying operating profit rose nearly 7% and basic earnings per share shot up just over 16%. The directors expressed their confidence in the outlook by pushing up the total dividend for the year by 8.2%. Indeed, the order book ended 2018 almost 8% higher than the previous year and the directors describe the anticipated work as “higher quality” due to the firm’s “differentiated strategic positioning.” Some 90% of the orders fall into the category of repeat businesssuggesting the potential for reliable incoming cash flow ahead.

An impressive evolution

It seems to me that Costain has evolved a long way from being merely an engineering and construction company, which should be some comfort to investors wary of the sector after recent high-profile failures such as Carillion. I think the company’s integrated and involved approach to working with its customer-companies should keep the business ticking over, growing gently, and out of the bankruptcy court.

We have learned today that Alex Vaughan, the current managing director of the firm’s natural resources division, will be promoted to chief executive in May. I see that as another positive because a change at the top in any business can bring new resolve and vigour to the enterprise. I view the shares as attractive.

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Kevin Godbold has no position in any share 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.