Go-Ahead Group(LSE: GOG) found itself fighting a rearguard action in Thursday trade, the stock last 10% lower on the day after a shaky full-year statement sent investors heading for the exits.
The travel giant was recently languishing at four-year lows after declaring that although revenues rose 3.6% in the 12 months ending June 2017, to £3.48bn, this could not prevent pre-tax profits slipping 5.7% to £136.8m.
Go-Ahead advised that its domestic bus operations were hit by "non-recurring costs, challenging trading conditions and declining passenger volumes." And the troubles across its Southeastern rail franchise also continued to give the FTSE 250 business grief, the division having been struck by a flurry of strikes in recent times.
Go-Ahead expects Southeastern to remain a thorn in its side for some time to come, advising today: "The rate of growth in Southeastern passenger revenue is expected to continue as economic conditions impact customers' travel patterns." It added that "this also reduces our expectations of rail division profitability for the current financial year."
Risk vs reward
While Go-Ahead still clearly faces some colossal obstacles at home, glass-half-full investors will point to the London company's ambitious international expansion strategy as reason to expect meaty returns in the years ahead. Indeed, Go-Ahead advised today that it is "progressing towards a new target for international operations to contribute 15% to 20% of group profit within five years."
The company signed bus contracts in Singapore and Ireland, and rail contracts in Germany, in the last year and is exploring transport contracts in Scandinavia and Australia at the moment.
And in the meantime the business is expected to continue doling out chunky dividends. The travel titan forked out a full-year payment of 102.1p per share in fiscal 2017 -- a figure which trumped City estimates of a 100.2p reward -- and is currently predicted to lift this to 103.2p in the present period.
As a result, Go-Ahead offers a gargantuan 6.5% yield. And while earnings are expected to tip 4% lower this year, the dividend is still covered a healthy 1.9 times, roughly in line with the widely-considered security watermark of two times.
But those seeking a dividend bet with more robust earnings prospects than Go-Ahead should check out Bellway (LSE: BWY), in my opinion.
Latest data released today from Halifax underlined the strength of the British housing market. The building society advised in its latest survey that average property values increased 1.1% month-on-month in August, to £222,293. And it said: "House prices should continue to be supported by low mortgage rates and a continuing shortage of properties for sale over the coming months."
In this environment the abacus bashers expect earnings at the building giant to have risen 14% in the year to July 2017, and an extra 8% advance is chalked in for the current year.
And these sunny projections are expected to keep its progressive dividend policy rattling along. For the last year a 119.7p per share payout is forecast, up from 108p in 2016. It is expected to step to a 129.8p reward for 2018, creating a tasty 4.1% yield.
When you also factor-in brilliant dividend coverage of three times, I believe Bellway is a great selection for income seekers right now.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.