Grab this 4.8% yield while you still can

The Motley Fool
Go-Ahead Group
Go-Ahead Group

Public transport provider Go-Ahead(LSE: GOG) has released an upbeat first quarter trading statement. It shows that it's performing in line with expectations and that it remains a strong income stock. As such, it could be worth buying right now before investor demand suppresses its dividend yield.


Go-Ahead's regional Bus revenue grew by 2% in the first quarter of the year, with passenger numbers up by 0.5% versus the same period of the previous year. This is a continuation of the growth rate in the second half of last year and shows that Go-Ahead continues to perform well. That's despite economic challenges in the north east, with Go-Ahead's revenue being 3% higher if that region is excluded from the results.

In Go-Ahead's London Bus division, the rate of growth has slowed. This was expected, but Go-Ahead has nevertheless been able to record a rise in revenue of 4%. And with its operations in Singapore now up and running, Go-Ahead is making encouraging progress in its wider Bus division.

Similarly, Go-Ahead's Rail performance has been strong. Its Southeastern and London Midland franchises have performed well, recording passenger revenue increases of 3.5% and 8% respectively.

However, its Govia Thameslink (GTR) services continue to be negatively affected by strike action. This contributed to a fall in passenger revenue of 3% during the period and a reduction in passenger journeys of 0.5%. Furthermore, the GTR services are suffering from narrower margins as a result of additional resources being invested to support service delivery. Despite this, Go-Ahead continues to expect margins for the life of the contract to be in line with expectations.

The yield's the thing

Go-Ahead currently yields 4.8%, which is 120 basis points higher than the FTSE 100's yield. At a time when many investors are seeking out higher yielding stocks due to rising inflation and a loose monetary policy, the popularity of Go-Ahead's yield could increase over the medium term. That's especially the case since it's performing well as a business and its dividend is covered twice by profit. This shows that there's scope for a brisk dividend rise in future years - even if Go-Ahead's profitability fails to rise rapidly.

However, Go-Ahead's challenges with the GTR franchise may make it less resilient than popular income stock National Grid(LSE: NG). The utility company is perhaps one of the most robust higher yielding stocks in the FTSE 100, with its yield of 4.2% being highly reliable and consistent. Furthermore, National Grid's dividends are well-covered by profit at 1.4 times and they provide a degree of protection against inflation. That's due to National Grid aiming to raise shareholder payouts in line with inflation over the medium term.

So, while National Grid may be a safer income option than Go-Ahead, the latter remains a highly enticing dividend stock. Therefore, its yield may fall in the coming months as investor demand rises for higher quality income stocks.

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Peter Stephens owns shares of National Grid. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.