Does Carillion plc’s 8.8% Yield Make It A Better Dividend Stock Than AstraZeneca plc, Aviva plc, HSBC Holdings plc And Royal Dutch Shell Plc?

Is Carillion plc (LON:CLLN) (LSE:CLLN.L) a superior dividend share compared to AstraZeneca plc (LON:AZN) (LSE:AZN.L), Aviva plc (LON:AV) (LSE:AV.L), HSBC Holdings plc (LON:HSBA) (LSE:HSBA.L) and Royal Dutch Shell Plc (LON:RDSB) (LSE:RDSB.L)?

Carillion plc
Carillion plc

Carillion plc (LON:CLLN) (LSE:CLLN.L) has announced 2016 results to investors today. It has increased full-year dividends per share by 1%, which takes them to 18.45p per share. This means Carillion’s shares now yield 8.8% at their current price. This makes them one of the highest-yielding shares I can find at the moment.

Carillion’s revenue increased 14% to £5214.2 million in 2016, with much of that being organic growth. Its performance was led by growth in support services, which contributed over two thirds of total operating profit. It also more than offset reductions in profit from Public Private Partnerships and Middle East construction services.

However, Carillion’s underlying operating margin was lower as expected at 4.9% against 5.3% in 2015. Its net borrowing of £218.9 million at 31 December 2016 and average net borrowing for 2016 were £586.5 million. They are higher than the same figures for 2015, with the increases mainly reflecting adverse forex movements.

The company has a £4.8 billion order book of new and probable orders, which is higher than the £3.7 billion from 2015. It has revenue visibility of 74% and a substantial pipeline of contract opportunities worth £41.6 billion. Therefore, I feel its dividend could be sustainable at current levels, given it has a dividend payout ratio of 52.2% using underlying earnings per share for 2016.

Carillion’s dividend yield of 8.8% is higher than for other popular dividend stocks such as AstraZeneca plc (LON:AZN) (LSE:AZN.L), Aviva plc (LON:AV) (LSE:AV.L), HSBC Holdings plc (LON:HSBA) (LSE:HSBA.L) and Royal Dutch Shell Plc (LON:RDSB) (LSE:RDSB.L). Shares in HSBC yield 6.35%, Aviva’s yield is 4.18%, AstraZeneca’s shares yield 4.86% and Royal Dutch Shell yields 6.97%.

In my view, Carillion has investment appeal as a dividend share. I think it arguably has higher risks than AstraZeneca, Royal Dutch Shell, HSBC and Aviva, but its higher yield helps to offset this to an extent. Given what I feel is a good strategy and potential for growth in the long run, I’m optimistic about Carillion’s dividend potential on a relative basis.

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