Since flotation in 2013, Royal Mail Group (LSE: RMG) shares have put in a disappointing performance. Despite an early rise, with the shares at 439p today, were looking at an overall 3.5% loss. Dividends paid since 2014 will have compensated somewhat, but early investors will have done well to break even after dealing costs.
But its that combination of a fallen share price and progressive dividends that make me thinkRoyal Mail isan attractive buy for long-term income right now.
Full-year results released Thursday show a 25% rise in pre-tax profit to 335m, and a forecast-beating 7% rise in earnings per share to 44.1p. That enabledthe company to lift its dividend by 4% to 23p, and whats nice about itis the dividend is staying ahead of inflation which is nudging 3% these days. Oh, and thats a tasty yield of 5.3% on yesterdays close, and appears adequately covered by earnings.
Although the increasing demise of the written word has led to a 6% drop in letters carried over the year, online shopping has helped compensate, with Royal Mail enjoying a 3% rise in parcel volumes. And though the parcels business is competitive, Royal Mail still carries around 50% of the UKs volume these days.
Its not just UK deliveries either, with the companys General Logistics Systems (which serves41 European countries and seven US states) seeing a 9% rise in revenue it accounts for 22% of revenues now.
The shares ticked up a couple of percent this morning, but were still looking at a forward P/E of a modest 11 (and thats before any upwards re-rating of forecasts, which I think is likely).
The market has punished Royal Mail shares over the past 12 months. But I reckon the market is wrong, and Im seeing a nice opportunity to snaga healthydividend stream for the long term.
Cows mean cash
Wallace isnt the only one who likes a bit of cheese according to the British Cheese Board,as a nation we consume around 700,000 tonnes of the stuff per year. And Dairy Crest Group (LSE: DCG) gets a fair chunk of that market with its popularCathedral Citycheddar.
The Dairy Crest share price dropped a little in morning trading Thursday,after earnings per share came in slightly behind forecasts at 35.6p per share, in the first year since the company disposed of its actual dairies to concentrate on its consumer brands.
Adjusted pre-tax profit was up 5% to 60.6m, with volumes fromCathedral City, and also from the firmsCountry Life, Clover andFrylight brands all climbing. (Incidentally, Dairy Crest also makes Utterly Butterly, so its not restricted to dairy products.)
Chief executiveMark Allen spoke of the companys industry-leading margins and its focus on building brand strength, and reckons Dairy Crest is well positioned to deliver profitable, sustainable growth and stronger cash generation, underpinning our commitment to growing our dividends and reducing debt.
The full-year dividend was lifted by 2% to 22.5p, for a yield of 3.7%, and I think thats pretty respectable with cover by earnings of 1.6 times. An increase in net debt of 20.8m to249.8m does concern me a little, but it was down to one-offs and the companys strong cash generation should enable it to reduce that in the medium term.
I see Dairy Crest as a company that should provide steady cash for decades to come.
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