LONDON -- I believe that diversified support services play Babcock International Group (BAB 0.29%) is an excellent pick for investors seeking access to a quality stock with stellar revenues possibilities.
In my opinion, the company's enviable expertise across a multitude of engineering markets, combined with excellent track record of securing meaty contracts with high-profile customers, should keep delivering dependable earnings growth and attractive dividend prospects moving forwards.
Solid orders outlook keeps on rolling
Babcock International announced in this month's trading statement that results for the 2013 financial year are set to meet expectations, with "strong progress" expected to be made from the previous 12-month period.
The firm's update gave investor confidence a hefty shot in the arm with regards to future earnings visibility. Babcock International's order book has remained steady at a weighty £12 billion, and has won or been installed as a preferred bidder on £1 billion worth of contracts since November. As well, the group's bid pipeline has increased to £15.5 billion from £14 billion as of the end of January, providing investors with peace of mind over earnings for the medium to long term.
Earnings and dividends expected to keep training higher
City analysts expect earnings per share to advance 12% in the year ending March 2013, to 69 pence, results for which are due on May 14. This is then expected to advance 4% and 9% in 2014 and 2015 respectively, to 72 pence and 78 pence.
Babcock International currently trades on a P/E ratio of 14.9 and 13.7 for this year and next, providing excellent value compared with a forward earnings multiple of 21.4 for the entire support services sector.
Moreover, although the dividend yield below the 3.2% FTSE 100 average, I believe that the firm's commitment to providing increasingly chunky shareholder payouts makes it an exciting income play moving forwards. Indeed, last year's payout of 22.7 pence is expected to rise to 25 pence in 2013, up 117% from the 11.5 pence payout just five years ago.
Dividends are then forecast to gallop to 27.3 pence and 30 pence this year and next, these payments carrying a yield of 2.6% and 2.8% respectively, up from 2.4% in 2013. And these prospective dividends are well protected with coverage well north of the widely regarded safety watermark of two times, with estimated readings of 2.6 times for this year and next.
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