Shares in support services company Carillion (LSE: CLLN) are up by over 4% today after it released an upbeat pre-close trading update and announced 1bn in new deals. Crucially, Carillion is on track to meet its expectations for the full-year. While the companys management team remains cautious, its seeing signs of improvement especially in the UK.
Encouragingly, Carillion now has a pipeline of contract opportunities thatsexpected to increase to over 41bn in value. And with it having a high level of revenue visibility for 2016 of 80%, Carillion is moving into next year in a stronger position than for some time. This should provide the market with a degree of confidence in its future potential and could prove to be the start of a gradual upward rerating to its valuation.
On this front, theres tremendous scope for improvement. Carillion currently trades on a price-to-earnings (P/E) ratio of just 9.2 and while earnings growth in the low single-digits over the next couple of years is rather pedestrian, the long term prospects given an improving UK economy mean that itappears to merit a higher valuation.
In addition, Carillion currently yields a whopping 5.7% and with dividends being covered 1.9 times by profit, theres vast scope for a rise in shareholder payouts in 2016 and beyond. That makesCarillion a very enticing income play at the present time.
The empire strikes back
Similarly, Imperial Tobacco (LSE: IMT) also holds huge dividend appeal. Its shares yield 4.4% at the present time and with this being more than 10% higher than the wider indexs yield, Imperial remains a relatively desirable income play. Allied to a high yield is a bottom line thatsdue to rise by 10% next year, offering significant scope for a rising dividend over the medium term.
Imperial also has a relatively modest payout ratio given its status as a mature company operating in a mature industry. In fact, it pays out just two-thirds of profit as a dividend and this provides it with tremendous scope to deliver rapidly rising shareholder payouts in 2016 and beyond.
Take a second look
Meanwhile, Tesco (LSE: TSCO) doesnt appear to be appealing from an income perspective at first glance. Its shares yield just 0.3% and even though dividends are due to more than treble next year, this still leaves Tesco with a prospective yield of just 1.1%. Thats lower than the rate of inflation and lower than the best savings accounts even on a net basis.
Butbeyond next year Tesco has the potential to become a relatively appealing income stock. Thats partly because its due to have a payout ratio of only 18% even after next years planned dividend hike. This means it could afford to raise dividends at a much faster rate than profit growth in the coming years.
Not that profit growth prospectslook weak.Tesco has huge potential due to a refreshed strategy and an improving UK consumer outlook that could boost the companys financial performance. And, with Tescos bottom line expected to rise by 78% next year, theimpact of those factors could come a lot sooner than was expected earlier this year.
Of course, Tesco, Carillion and Imperial Tobacco aren’t the only companies that could be worth buying at the present time. With that in mind, the analysts at The Motley Fool have written a free and without obligation guide called 5 Shares You Can Retire On.
The 5 companies in question offer stunning dividend yields, have fantastic long term potential, and trade at very appealing valuations. As such, they could deliver excellent returns and provide your portfolio with a major boost in 2016 and beyond.
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