Royal Mail PLC (LON:RMG) (RMG.L) has released an update today on its 2018 Pension Review. The company has had extensive talks with unions Unite/CMA and CWU to try and find a sustainable and affordable solution for the pension plan after 31 March 2018. As of that date the current plan will close in its current form to future accrual.
There is now a choice for members between a Defined Benefit scheme and a Defined Contribution scheme. Unite is apparently planning to hold a ballot of its members on the proposal, with it also being made available to CWU. According to today’s update, it represents an improved proposal compared to the original Defined Contribution proposal.
Royal Mail anticipates that the overall cost of the proposal would be funded within its current £400 million annual pension contribution. This represents a lower level of risk compared to the existing Defined Benefit scheme in the eyes of the company, which I feel is good news for the outlook for the business.
With a dividend yield of 5.6%, I think Royal Mail has income appeal for the long term. Its yield is similar to other popular income stocks such as SSE PLC (LON:SSE) (SSE.L), National Grid plc (LON:NG) (NG.L), Next plc (LON:NXT) (NXT.L) and Centrica PLC (LON:CNA) (CNA.L). For example, SSE yields 6.2%, Centrica has a dividend yield of 5.8%, Next yields 4.3% and National Grid has a yield of 4.6%.
In my opinion, Royal Mail has investment appeal for the long run. From today’s update, it seems to be making progress with talks regarding the pension scheme, which I feel is good news for its future. I believe there is still significant political risk, but with a relatively high yield and growth potential in its international business, I feel it could have income investing appeal for the long run.