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I’d buy this 4%-plus yielder alongside GlaxoSmithKline and Imperial Brands

I like big FTSE 100 firms that pay big dividends and operate in defensive sectors, such as GlaxoSmithKline and Imperial Brands. But I also like to invest in smaller firms if they are trading well and paying a big dividend yield, such as logistics operator Wincanton (LSE: WIN).

The firm started off in milk haulage as far back as 1925 but now provides transport and logistics services for several industries including things such as automated high bay, high capacity warehousing, supply chain management services for businesses, and container transportation and storage and other related services. The company has come a long way from its origins and seems to be embracing the demands of the modern world.

Decent figures

Things are going well, and today’s full-year figures tell the story of an enterprise that is flourishing. Although revenue eased back by 2.6% compared to the previous year, underlying earnings per share rose almost 9%, net debt plummeted by nearly 35%. The directors expressed their confidence in recent trading and the outlook by pushing up the total dividend for the year by 10%.

And the dividend is one of the chief attractions for me. The current share price around 261p means today’s declaration leads to a yield of just over 4%. Wincanton has been recovering since a patch of difficult trading a few years back, but since dividend payments were restored in 2016, the payment has almost doubled over three years, which strikes me as great progress. Another attraction is the low-looking valuation. The price-to-earnings multiple is running around eight and is forecast to drop on improved earnings going forward.

Wincanton deals with some hefty clients and the report today trumpets decent new business contract wins from well-known names such as EDF Energy, Weetabix, Co-op, HMRC, Aggregate Industries, Roper Rhodes and others. The directors also said in the report that “high customer satisfaction” led to renewals from other big organisations such as Asda, Loaf.com, Halfords, Ibstock, British Sugar and others.

Some defensive qualities

It seems to me that Wincanton is a trusted partner of many ‘essential’ consumer businesses and, as such, operations could offer a degree of defensive, cash-generating appeal, which is good for ongoing dividend payments to Wincanton’s shareholders.

Another feature I like is that chief executive Adrian Coleman plans to step down to be succeeded by James Wroath “no later than the end of October.” Generally, I think a change at the top in any business can usher in a new period of determination, enthusiasm and vigour from a management team, which can be good for the enterprise and the share price.

The outlook is positive, but one thing to keep an eye on is the size of Wincanton’s pension obligations. Today’s report reveals that the company generated just over £57m in cash during the period but was left with just under £25m after settling its pension deficit payment for the year. Pension payments vary from year to year and can be unpredictable. Overall, though, I like the look of Wincanton today.

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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.