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FirstGroup's 12% Yield

LONDON -- FirstGroup  (LSE: FGP  ) advanced 4 pence to 196 pence during early London trading this morning as investors speculated about the 12% income available on the transport group's shares.

FirstGroup, which runs First Great Western trains and Greyhound buses in the States, issued a third-quarter statement today that provided no further clues as to the level of the group's near-term payout.

Tim O'Toole, FirstGroup's chief executive, commented: "As previously stated, following the uncertainty caused by the Department for Transport's decision to delay its refranchising program the Board held the interim dividend at last year's level. We will consider the full-year dividend in May 2013, by which time the prospects for our rail division are expected to be clearer."

During the last 12 months, FirstGroup has declared dividends totalling 23.67 pence per share and in October had said it would lift its payout by 7% for 2013.

However, the fiasco surrounding the tendering for the InterCity West Coast rail franchise -- in which FirstGroup's selection was overturned after "significant technical flaws" were discovered in the wider bidding process -- has cast some doubt over the fortunes of the FTSE 250 company.

Indeed, first-half results issued during November showed earnings collapsing 36% and current forecasts suggest earnings for the year as a whole may drop 25% to 30 pence per share. As such, possible dividend cover at less than 1.3 times looks thin.

At least today's statement revealed trading had been in line with expectations during October, November, and December, although costs relating to Hurricane Sandy hurt profits by $15 million. During the quarter, FirstGroup's U.K. bus revenues improved 2% while its U.K. rail revenues gained 8%.

Tim O'Toole added: "Demand for high quality, attractive services that offer value for money remains and we are confident that the actions we are taking will strengthen our business and its prospects for long-term growth. While there is significant work still to do, we are satisfied with the progress of the actions taken so far, though we remain cautious in respect of continued economic weakness."

Right now, FirstGroup's 12% yield makes the company one of the many shares that presently offer a dividend income well ahead of what you can expect to receive from a standard savings account.

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9/28/2016 11:35 AM
FGP $106.10 Up +1.90 +1.82%
FirstGroup CAPS Rating: No stars