Carillion plc (LON: CLLN) (LSE: CLLN.L) has announced that it has been selected by Centrica PLC (LON: CNA) to be its preferred partner to deliver facilities management and project services for an initial period of five years. There is an option to extend the contract to seven years and it has an estimated value to Carillion of £90 million over the five years. It is due to commence in December 2016.
Carillion will provide a range of hard and soft facilities management services. These will include asset surveys and planning, cleaning, security and catering, as well as certain construction projects and other services. The contract builds on a ten year+ relationship which Carillion has had with Centrica as managing agent and extends the scope of the services offered.
Shares in Carillion have responded positively to the news. They have risen by 2% today but they are still 12% lower than they were at the start of the year. One plus for new investors after this price fall is that Carillion’s yield is higher than it was nine months ago. Carillion yields 7.1% and its dividend is covered 1.83 times by earnings.
This is higher than a number of shares which are widely held as income stocks by investors. For instance, National Grid plc (LON: NG) yields 4.1% from a dividend that is covered 1.45 times by profit, British American Tobacco plc (LON: BATS) has a yield of 3.4% and its dividend is covered 1.48 times by EPS, Unilever plc (LON: ULVR) yields 2.8% and its dividends are covered 1.54 times by earnings, while Centrica’s yield of 5.2% is covered 1.25 times by profit.
In my view, Unilever, National Grid and British American Tobacco offer greater stability than Carillion due to their lower risk profiles. However, Carillion’s yield and coverage ratio means that it has appeal for income investors in my opinion.
The author owns shares of National Grid, British American Tobacco and Unilever, but not Carillion or Centrica at the time of writing.