International bus and train service operator Go-Ahead (GOG) revealed it will reinstate its pre-Covid dividend policy this year as it set out medium-term plans to boost revenue and profit.
That means a restoration of a policy to paying dividends equivalent to between 50% and 75% of underlying earnings per share each year, starting with plans to recommend a payout of not less than 50p this financial year to 31 July 2022.
The company revealed dividend plans alongside a new strategy, ‘The Next Billion Journeys,’ where it believes it has identified areas where Go-Ahead can deliver improvements and sustainable growth for the longer-term.
‘We plan to strengthen, digitalise and decarbonise our operations, delivering greater profitability and stronger returns to investors alongside improvements for our customers and communities,’ said chief executive Christian Schreyer in a statement.
The new strategy involves a reaffirmed commitment to reduce carbon emissions by 75% by 2035, while Go-Ahead is targeting annual group revenue of around £4 billion in the medium-term, which it said would be up by around 30%, and operating profit of at least £150 million.
For the July 2021 financial year, Go-Ahead posted adjusted operating profit of £115.5 million.
SHARES JUMP ON DIVIDEND RETURN
The new plans, particularly on the dividend, were warmly welcomed by investors, bidding the Go-Ahead share price up around 5% to 883.58p.
That remains nearly 40% below its £13 levels of a year ago, emphasising Go-Ahead’s patchy shareholder returns performance. According to Morningstar data, the stock has earned investors negative annualised returns over both three (-22.8%) and five year periods (-8.05%), although the impact of Covid and axed dividend during the pandemic must be taken into account.
If we look to the three years before the pandemic struck, Go-Ahead shares earned investors an average 8.7% a year. However, the company also paid investors an average 92p per share a year during that period.
Based on this year’s promised 50p (minimum) dividend, the dividend yield would be 5.6% on the current share price. Implying similar pre-pandemic high single-digit share price returns going forward, investors could conceivably anticipate low-to-mid-teens total returns in the years to come, if Go-Ahead’s plans come to fruition.
