Todays disposal of Legal & Generals (LSE: LGEN) self-invested personal pension (SIPP) provider Suffolk Life to Curtis Banks for 45m is good news for the companys investors. Thats because its in line with L&Gs strategy of focusing on its core operations, through which it believes it will be able to achieve significant scale and more attractive returns on capital.
Looking ahead, L&G is forecast to post an increase in its bottom line of 7% in the current year and with its shares trading on a price-to-earnings (P/E) ratio of 11.9, it appears to be a strong buy at the present time. Thats not only because of the scope for an upward rerating however, since L&G also has a yield of 5.9% as well as upbeat income prospects.
For example, L&G is expected to grow its shareholder payout by 6.7% in the current year. And with it having a payout ratio of 70%, there appears to be scope to raise dividends by at least as much as profit increases in future years. Therefore, while the companys shares have tumbled by 9% already in 2016, they appear to be a sound long-term buy for income-seeking investors.
One stock thattrumps L&Gs yield is diversified energy company BHP Billiton (LSE: BLT). It currently yields a whopping 12.5% and this indicates that the market is convinced there will be a dividend cut in the near term. This would be a sound move for the company since its current level of payout appears to be highly unaffordable over the medium-to-long term, since it equates to more than double the level of net profit due to be recorded this year.
While a dividend cut would be bad news in the short run, it would help to shore-up BHPs long-term outlook and could release capital to be spent on acquisitions so it cantake advantage of the discounted prices thatare present in the energy space. And with BHP enacting a major restructuring thathas seen non-core assets spun-off, its long-term future could be brighter as it seeks to increase its market share and also become a more efficient business.
So, while BHP may not be a strong buy for income-seeking investors due to the potential for a major dividend cut, it still offers the potential for a high total return in the long run.
Meanwhile, Experian (LSE: EXPN) today updated the market on its progress, with the credit-check company suffering from an appreciating dollar thataffected revenues at its Latin American business in particular. However, on a constant-currency basis, Experian increased its top line by 6% in the third quarter of the year and has maintained its previous guidance for the full year.
With Experian yielding just 2.5% at the present time, there appear to be better options elsewhere when it comes to income stocks. Certainly, Experian has the potential to rapidly increase its dividend, with the company having a dividend coverage ratio of 2.2 and being expected to increase earnings by 7% this year. However, with the FTSE 100 yielding over 4%, Experian lacks appeal as a dividend stock over the medium term.
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