Does SIG plc Have More Income Appeal Than National Grid plc, BP plc, Centrica PLC And GlaxoSmithKline plc After Today’s Trading Update?

Is SIG plc’s (LON:SHI) (LSE:SHI.L) yield higher than those of National Grid plc (LON:NG) (LSE:NG.L), BP plc (LON:BP) (LSE:BP.L), Centrica PLC (LON:CNA) (LSE:CNA.L) and GlaxoSmithKline plc (LON:GSK) (LSE:GSK.L)?

SIG plc
SIG plc

SIG plc (LON:SHI) (LSE:SHI.L) has released a trading update for the year to 31 December 2016. Sales were £2,738 million, which is an increase of 11.2% compared to the previous year. It benefitted from forex movements, acquisitions and working days, which added 6.9%, 3.7% and 0.3% respectively. On a LFL basis, sales increased by 0.3%.

Underlying profit before tax for 2016 is still expected to be within the previously stated £75 million to £80 million range. Gross margin is expected to by 30 basis points lower than in the prior year. In the UK and Ireland, LFL sales rose by 1.1%, with SIG Distribution’s LFL sales up 1.2% and SIG Exteriors LFL sales falling by 1.5%. In Europe, LFL sales were down 0.5%. Performance in France and Germany was particularly weak. They registered LFL sales falls of 2% and 1.3% respectively.

SIG’s leverage at year end is expected to be 2x net debt to EBITDA, which is above the company’s medium term target of 1-1.5x. Leverage reduction will be a bigger priority for the company since it will focus on its cash generation, moderating capex and suspending its infill acquisition programme. It will also seek to restore its customer focus and place a greater emphasis on sales growth.

SIG yields 4.2%, which is roughly in line with the yields of popular dividend shares such as National Grid plc (LON:NG) (LSE:NG.L), BP plc (LON:BP) (LSE:BP.L), Centrica PLC (LON:CNA) (LSE:CNA.L) and GlaxoSmithKline plc (LON:GSK) (LSE:GSK.L). National Grid yields 4.7%, Centrica has a yield of 5.5%, GlaxoSmithKline yields 6.1% and BP’s yield is even higher at 7.1%.

In my view, SIG had a tough year in 2016, but has a sound strategy through which to improve its performance in 2017. I feel it has income appeal for this reason, as well as its focus on reducing leverage. While I’d rather buy other higher yielding shares, SIG easily beats the top interest rates for savings accounts and has income appeal in my opinion.

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