Concerns over the possibility of a sharp economic slowdown in Britain continues to haunt Royal Mail (LSE: RMG).
The stock more-or-less flatlined during the third quarter after a sharp decline during the dying embers of September. But while the possible negative impact of Brexit ahead should quite rightly concern investors, I believe Royal Mail remains a top-drawer FTSE 100Â pick, particularly for income chasers.
My positive take on the firm is shared by the City, which expects Britain’s oldest courier to hike a payment of 22.1p per share in the year to March 2016 to 22.8p in the current period. This projection yields a market-mashing 4.7%, but this isn’t the end of the story — indeed, a 23.9p reward is expected in fiscal 2018, driving the yield to a terrific 4.9%.
Royal Mail wouldn’t find itself immune to a sudden slowdown in consumer spending in the post-EU landscape — e-commerce is of course a massive deal for future parcels traffic — nor a wider slowdown in business activity.
But the online marketplace is one retail segment that’s likely to keep growing, in my opinion, and consequently keep package volumes rising. And Royal Mail’s ongoing restructuring programme should help mitigate any near-term revenues weakness too.
Meanwhile, Royal Mail also continues to bolster its international position to mitigate any problems in its home markets. Just this week the firm’s GLS overseas division sucked up Californian next-day delivery specialist Golden State Overnight for $90m.
The number crunchers expect Royal Mail to follow a marginal earnings uptick in the current year with a 2% rise in 2018, leaving chunky dividend coverage of 1.8 times for these years. I reckon the parcels giant is in great shape to deliver ultra-generous dividends well into the future.
A surefire hit
I also expect defence play BAE Systems (LSE: BA) to keep its progressive dividend policy on track in the coming years. Rising tensions between the US and Russia concerning intervention in Syria illustrate the increasingly-precarious position between the two superpowers, a situation that’s likely to bolster defence spending in the coming years.
But that’s not the West’s only concern, with Chinese expansionism in the South China Sea — allied with the battle against terrorism — also fuelling the need for BAE Systems’ broad range of security products.
Lumpy contract timings are expected to result in a 3% earnings decline in 2016, although a projected dividend of 21.3p per share — up from 20.9p last year — still creates coverage of 1.8 times. And the payment yields a splendid 4%.
An estimated 8% earnings recovery in 2017 results in coverage of 2 times, bang on the widely-regarded safety watermark, with a predicted 21.8p dividend also yielding a stonking 4.1%. I reckon the stage is set for BAE Systems to keep on delivering splendid shareholder returns well into the future.