Should you buy this FTSE 250 share for its 5.8% dividend yield?

Public transport provider Stagecoach (LSE: SGC) released its half-year results report today and the shares look perky on the news.

The bus, coach and tram operator sports some tasty-looking metrics. With the stock at 131p, the forward-looking earnings multiple runs at just over 10 for the trading year to April 2021, and the anticipated dividend yield is about 5.8%.

A smaller business

However, the business has been in a state of flux because the Virgin Trains East Coast franchise ended in June 2018 and East Midlands Trains franchise finished in August 2019. As you might expect, the trading figures are down. Revenue, for example, came in almost 21% lower than the equivalent period last year.

But that’s not the whole story. The adjusted figures for continuing operations are also lower, with profit before tax almost 9% down year-on-year and earnings per share nearly 5% below last year’s figure. Yet the directors held the dividend flat, which I reckon suggests the business may have stabilised.

The company said in the report that the reduced profit numbers arose because of “various factors” affecting the bus operations such as “exceptionally” good summer weather in 2018. And the non-recurrence of prior-year revenue from bus services related to rail re-signalling work in the Derby area. 

The company is in the process of taking legal action against the Secretary of State for Transport regarding his decisions to disqualify Stagecoach from three rail franchise competitions. And, in 2020, the High Court is due to hear the three cases. Meanwhile, the directors reckon they have “no intention” to bid for new UK rail contracts on the current risk profile offered by the Department for Transport.

Flat trading

However, looking ahead, the firm has plans to grow by diversifying “to balance the portfolio” and to “open up” new markets. The directors have already identified specific bidding opportunities “based on clear criteria.” And one of them is for the role of operator of the Roslagsbanan rail system in Stockholm County, Sweden, for which Stagecoach is a shortlisted bidder.

Chief executive Martin Griffiths said in the report he welcomes recent government “pro-bus” policy and funding commitments. He reckons Stagecoach is “well placed” to benefit from the “global drive for better mobility, cleaner air and action to protect the future of our planet.”

But scoping in a bit from that visionary outlook, the directors have unchanged expectations for the current trading year. And City analysts following the firm expect earnings to come in lower with a continuing slide the year after and an essentially flat full-year dividend remaining where it is again in the following 12-month period.

It seems to me the government’s public transport policy is unpredictable. Meanwhile, the share price looks like it’s in a downward trend. And with no sign of a rising dividend ahead, I find the stock to be unattractive.