2 growth and dividend stocks set to succeed where Carillion plc failed?

For years, Carillion was paying out handsome dividend yields and looked like a solid cash cow. But irresponsibly handing out so much cash while building up massive debt can be a killer, as we have now seen.

There's been a knock-on effect across the outsourcing and construction business, and some have feared for the future of Balfour Beatty(LSE: BBY) after a few years of losses. But profit returned in 2016, and EPS is expected to have more than doubled for the year ended December 2017 -- results are due 14 March.

The company's prospects got a nice boost Friday, after a joint venture in which Balfour Beatty has a 30% stake was awarded a contract worth $1.9bn (approximately £1.4bn) at Los Angeles International Airport. The deal will see the building, operation and maintenance of an 'Automated People Mover' at the airport, which will include a 2.25 mile transport system with six stations, trains and moving walkways.

Dividends returning

That bodes well for the future of Balfour Beatty's dividends, which resumed in 2016 with a modest yield of 1%. That's forecast to rise a little to 1.5% for 2017, and up quickly to 3.3% by 2019. In terms of cover by earnings, it looks safe at around 2.7 times.

And looking at the company's debt situation, I'm not too worried. Net debt stood at £232m at the interim stage at 30 June, and compared to a predicted full-year pre-tax profit of £136m, that looks easily manageable -- though I'd like to see a full-year debt-to-EBITDA comparison at results time.

Growth forecasts put the 277p shares on P/E multiples of 13-15, though that would drop to under 11 by 2019 while a progressive dividend approach is being reasserted. That looks cheap to me.

Resisting takeover

Automotive engineering specialist GKN(LSE: GKN) has been in the news recently, for the wrong reasons as a series of problems put pressure on the share price. The sell-off was looking a bit overdone, and that was reinforced by an acuisition attempt from Melrose Industries.

Melrose specialises in taking over struggling engineering companies and turning them round, and if you can handle the resulting volatility of earnings then I reckon it's a good long-term investment itself. But back to GKN, if Melrose thinks the shares are cheap enough to attempt a takeover, they're surely cheap.

GKN's board has dismissed the approach as "entirely opportunistic," saying that the terms "fundamentally undervalue GKN and its prospects," and I agree.

We've seen some writedowns, and there might still be more accounting hits. But there's a new chief executive, and I'm convinced that the turnaround foreseen by the City's analysts really is a realistic prospect.

Back to growth

Though there's a 10% fall in EPS expected for 2017 (with results due 27 February), that's slated to quickly reverse with growth of 14% and 10% in 2018 and 2019 respectively.

GKN has kept its dividend growing throughout. And though yields are only around 2.5%, predicted cover stands at more than three times and rising. And the dividend is progressive too, growing above inflation right now.

I'll be taking a close look at full-year net debt, though at the interim stage at 30 June it stood at £697m, which is modest. The company rated it at just 0.6 times EBITDA, which easily satisfies covenant requirements of no greater than three times, and is well within my comfort zone too.

I do hope Melrose is unsuccessful.

Great long-term stocks

Shares like these, which offer a combination of long-term growth coupled with with rising dividends, can help you reach a very comfortable retirement.

If you buy Balfour Beatty or GKN, I'd recommend combining them with more of similar quality, to lay the foundations of a great long-term portfolio.

If you want to know what the Fool's top experts think, click here now for your free copy of their report on their five favourite super stocks.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of GKN and Melrose. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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