Forget Barclays! I’d go for this stock and its growing dividend yield near 5%

This company’s outlook is positive and growth is on the agenda, yet the valuation looks modest.

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The big, London-listed banks are paying some big yields right now. But I’m wary of the sector because it’s so aligned with the ups and downs of the wider economy. If we see a cyclical downturn, I reckon the dividend, which is yielding around 5% at Barclays, could disappear in short order.

Supporting everyday economic activity

I’d rather invest in a company such as Wincanton (LSE: WIN), which also has an anticipated dividend yield of around 5%. The firm describes itself as the largest British third-party logistics company,” and as such, I reckon it has a decent position in the market supporting everyday economic activity. The financial and trading record has been steady over the past few years and the valuation looks modest.

The shares are up more than 5% today on the release of the half-year results report – the stock market appears to like it. Compared to the equivalent period the year before, revenue rose 1.9% and underlying earnings per share elevated by almost 10%. There was also encouraging progress with the balance sheet because net debt fell by almost 39% to just under £15m.

That figure is just below 30% of the level of last year’s operating profit, which strikes me as a modest amount of borrowings. On top of that, the pension scheme reported it had a surplus of £8.1m on 30 September 2019, which compares to a deficit of almost £30m a year earlier. The directors said in the report the improved position with the pension scheme is due mainly to cash contributions of £9.7m made by the company in the first half of the year.

A steady cash performance

Overall, Wincanton’s cash performance appears to be travelling in the right direction. Meanwhile, the directors applied their own seal of approval and displayed confidence in the outlook by pushing up the interim dividend by just over 8%. And that’s the kind of steady progress I’d expect from an investment in Wincanton in the years ahead. City analysts following the firm have pencilled in high single-digit percentage advances in the dividend for the current trading year to March 2020 and for the year after that.

The firm made decent operational progress in the period and among other business wins, struck a five-year deal with Morrisons to provide transportation, vehicle maintenance and fuels distribution. There were also “key” renewals with Ibstock, Müller, Adidas, Williams Sonoma and Cormar Carpets.

Chief executive James Wroath put his feet under his desk for the first time in September, and change at the top of any business is a potential tick on the stock-selection form for me. I reckon there’s a good chance we could see renewed drive and enthusiasm from the management team leading to positive change. Indeed, while acknowledging the previous efficiency drive and the positive culture embedded in the business, he said in the report that he’s started to review the opportunities facing the firm “as part of our wider strategy.”

The outlook is positive and growth is on the agenda. And with the shares at 258p, the forward-looking earnings multiple is just over seven for the trading year to March 2021, with the anticipated dividend yield a smidgen under 5%. I think the valuation is attractive.

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.

Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended Barclays and Ibstock. 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.

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