Today I’ll be taking a closer look at oil giant BP (LSE: BP), high street retailer Marks & Spencer (LSE: MKS), and global engineering group GKN (LSE: GKN). Which one is worthy of your hard-earned cash?
Revolting shareholders!
Shareholders in oil giant BP recently voted against the proposed pay award for its chief executive after the company’s dismal performance in 2015. At the annual general meeting, 59% of shareholders voted against the £13.8m pay package for CEO Bob Dudley.
In recent years shareholders have voted overwhelmingly in favour of the pay awards at the AGM’s, with 84% approval last year, and 94% the year before. After consulting with major shareholders the company decided to stick with the proposed payment plans but promised to revise their remuneration policy in the future, starting at the next AGM.
The low oil price has meant that BP shares have been under severe pressure in recent times, but the falling share price has given rise to increasingly attractive dividend yields, which now stand at over 7.5% for the next two years. Income seekers might want to build up a holding over the long term.
Marks & Spencer
Earlier this month retail giant Marks & Spencer updated the market with a mixed fourth quarter trading announcement. The company revealed that market share of food was up, and the new store opening programme was ahead of schedule. However, sales of clothing and homewares were 2.7% lower on a like-for-like basis.
Final results for the year ended 31 March aren’t due until 24 May, but market consensus suggests a small 3% rise in underlying earnings to £556m, with further single-digit growth of 5% and 7% for this year and next. At current levels the company is offering a decent dividend for income hunters, with 18.83p forecast for the year just ended, rising to 20.08p for the current year, then 21.42p for fiscal 2018, giving prospective yields of 4.3%, 4.5% and 4.8%, respectively. So income hunters should be happy, but what about the valuation?
To me M&S shares look slightly undervalued, trading on a forward P/E ratio of 12 for this year, falling to 11 for 2017. I think there’s some potential for capital growth, but the main attraction will be the solid dividends.
GKN
Automotive and aerospace components firm GKN reported a rise in first quarter sales when it updated the market with a trading announcement on Wednesday. The group issued an encouraging update for the three months to 31 March, revealing a 12% rise in sales to £2.18bn, compared to £1.94bn for the same period last year.
Management said the group had performed in line with expectations, and that the integration of the recently acquired Fokker Technologies was progressing well and had contributed £159m in sales. Market consensus is for underlying earnings to drop slightly to £470m this year, followed by an 8% rise to £507m next year. This would leave GKN trading on 11 times forecast earnings for this year, falling to 10 for the next year.
The low P/E rating makes the shares look cheap, but this is in line with the recent past for GKN, where multiples of 8 to 13 has been the norm. For me the shares aren’ yet appealing enough to buy given the modest growth projections.