From the FTSE 100…

One company that’s shown itself to be as reliable as they come for dividends is tobacco giant Imperial Brands (LSE: IMB). With the exception of the anomaly that was 2020, the company has consistently bumped up its cash returns year after year. And right now, the shares yield a monster 7.7%.

This may be one reason why Imperial has done well year-to-date — up 13% in value. When times are tough, investors seek out businesses where earnings are fairly predictable. And despite suggestions that the tobacco industry might be in terminal decline, I can still see people puffing away for a long time to come.

Despite recent gains, Imperial trades on an undemanding valuation of seven times forecast earnings. That’s still cheap relative to other companies in the consumer defensives sector.

My concern here is whether we could see some profit-taking when growth stocks come back into favour. So, Imperial would not be a stock I would buy for income and capital gains. There’s also the issue of increasing — and understandable — anti-smoking regulation. But I still see this as a reliable dividend stock.

Safe as houses?

Since spreading my cash around different sectors is a good way of reducing risk, my other two top income stocks for today have nothing to do with tobacco.

FTSE 250 housebuilder Bellway (LSE: BWY) is another reliable dividend payer. It’s set to yield 6% in the current financial year.

Even so, Bellway’s record of hikes isn’t perfect. Like Imperial, the Newcastle-based business dropped the dividend substantially as the pandemic hit the UK. However, cash returns bounced back 135% in 2021 and are now nearly at pre-Covid levels. The payouts look likely to be easily covered by profits too.

Of course, a cooling of the housing market wouldn’t be great news. Then again, the huge and ongoing demand for quality housing in the UK suggests any reduction would be temporary if it happens at all.

Trading at less than six times earnings, a lot of negativity looks priced in to me.

Hot stuff

Today’s third FTSE 350 dividend stock has a lower profile than either Imperial Brands or Bellway. Nevertheless, heat treatment and thermal processing supplier Bodycote (LSE: BOY) is another reliable source of dividends. Interestingly, it didn’t drop its payout in 2020!

Can this streak continue? Well, the company announced that trading in the first three months of the year had been in line with expectations. However, it also stated that it was beginning to see “unprecedented volatility” in demand for its services “driven by material shortages at customers“. This makes for a foggy outlook, at least in the short term.

Still, I’m pretty confident that the income stream shouldn’t be interrupted. The 3.9% yield should be safely covered by profit unless trading falls off a cliff.

The shares also look reasonably priced to me at 13 times forecast earnings.

Dunelm

Dunelm (LSE: DNLM) is a British home furnishings retailer that operates throughout the UK. It is one of the largest homewares retailers in the country with an ever growing market share. New director Karen Witts was appointed CFO this week and a number of Dunelm shares were awarded to her.

• Name: Karen Witts
• Position of director: Chief Financial Officer
• Nature of transaction: Free shares
• Date of transaction: 9 June 2022
• Amount purchased: 73,979 @ nil
• Total value: £N/A

Investec

Investec (LSE: INVP) is an international banking and wealth management group. It provides a range of financial products and services to a clients in Europe, Southern Africa and Asia Pacific. This week, a number of director dealings were carried out in both directions.

• Name: Ciaran Whelan
• Position of director: Director
• Nature of transaction: Sale to cover tax liabilities
• Date of transaction: 8 June 2022
• Amount sold: 24,037 @ £4.77
• Total value: £114,674.28

• Name: Ciaran Whelan
• Position of director: Director
• Nature of transaction: Partnership shares
• Date of transaction: 8 June 2022
• Amount purchased: 21,531 @ £4.77
• Total value: £102,702.87

• Name: Stephen Koseff
• Position of director: Director
• Nature of transaction: Sale to cover tax liabilities
• Date of transaction: 6 June 2022
• Amount sold: 31,514 @ £4.82
• Total value: £151,938.67

• Name: Ruth Leas
• Position of director: PDMR
• Nature of transaction: Sale to cover tax liabilities
• Date of transaction: 8 June 2022
• Amount sold: 10,179 @ £4.75
• Total value: £48,374.68

• Name: Ruth Leas
• Position of director: PDMR
• Nature of transaction: Partnership shares
• Date of transaction: 8 June 2022
• Amount purchased: 10,330 @ £4.75
• Total value: £49,092.29

• Name: Fani Titi
• Position of director: Director
• Nature of transaction: Sale to cover tax liabilities
• Date of transaction: 6 June 2022
• Amount sold: 75,150 @ £4.84
• Total value: £363,996.54

• Name: Nishlan Samujh
• Position of director: Director
• Nature of transaction: Sale to cover tax liabilities
• Date of transaction: 6 June 2022
• Amount sold: 37,885 @ £4.84
• Total value: £183,499.79

Bodycote

Bodycote (LSE: BOY) is the world’s largest provider of heat treatment and thermal processing services. The service acts as a vital link in the manufacturing supply. A non-executive director purchased a decent number of Bodycote shares this week.

• Name: Nicola Susan Boyd
• Position of director: Director
• Nature of transaction: Purchase of shares
• Date of transaction: 8 June 2022
• Amount sold: 3,000 @ £6.54
• Total value: £19,620.00

Types of shares in a SIP

To provide context, there are a few types of shares within a company’s share incentive plan (SIP). A SIP is an employee plan for companies within the UK to flexibly award equity to employees. Publicly listed companies normally exercise this option because it’s tax-efficient for both the employer and its employees.

In this instance, the director dealings at Investec bought partnership shares. Employees can use a SIP to buy shares on a monthly basis or at the end of an ‘accumulation period’. If there is an accumulation period in effect, employees can buy shares at the market value at the beginning or end of the period.

One way of separating the wheat from the chaff is to look for companies that have better-than-average records of consistently raising their bi-annual payouts.

Here are three examples, all of which come from the FTSE 250 and probably remain under the radar of many private investors.

Cranswick

Meat supplier Cranswick (LSE: CWK) is a great passive income stock, in my view. The company has a long history of growing its annual cash returns to investors. In fact, hikes in recent years have often been by double-digit percentages. So while no dividend stream can be guaranteed, this is exactly the sort of form I’m looking for.

Based on recent trading, I have no concerns over this trend continuing. In its most recent update, the FTSE 250 stock said trading over the festive period has been “comfortably ahead” of the same time in 2020. This was despite “unprecedented industry-wide labour and supply chain challenges” and cost inflation.

Will we still be talking about these headwinds in a few years though? I sincerely doubt it. 

As good as the dividend hikes have been, Cranswick is a fairly low-margin business. Admittedly, the 2.2% forecast yield isn’t all that generous compared to others in the UK market either. 

Still, the amount of free cash flow (essentially, what allows a company to pay passive income to holders) is looking very healthy indeed. This makes me believe the company will continue growing its dividends in the years ahead. 

Bodycote

Heat treatment and thermal processing specialist Bodycote (LSE: BOY) is another FTSE 250 member that’s been increasing its annual payouts to investors for a long time. This quality tends to be indicative of a very resilient company.  

As things stand, Bodycote is expected to yield 21p per share in FY22. That becomes a yield of 3%. Again, this fairly average return doesn’t bother me. I’d rather invest in a company where my passive income is likely to be paid and also increasing every year. 

The shares have fallen 20% in 2022 so far, which highlights how even solid dividend payers can be just as volatile as more growth-focused stocks. Headwinds, such as supply chain disruption and cost inflation, won’t go away overnight either. 

Nevertheless, Bodycote seems to be trading just fine. This month’s full-year results revealed a 7.1% rise in revenues to almost £616m. Operating margins also rose to 15.4%. 

Clarkson

Shipping services provider Clarkson (LSE: CKN) strikes me as another stock that many private investors might be unfamiliar with. Similar to the other two shares mentioned here, the £1.1bn-cap company regularly lifts its annual dividend. In fact, it’s been doing this for the last 19 years! 

A forecast 2.5% yield in 2022 is expected to be covered almost twice by profit. That last bit is important. The greater the dividend cover, the less likely it is that the payment will be cut.

On the downside, shares in Clarkson aren’t a bargain, at almost 21 times earnings. This potentially makes the stock a more risky buy.

Even so, the balance sheet looks pretty solid to me. Earlier this month, Clarkson also announced record underlying pre-tax profit of £69.4m for 2021. Maintaining this kind of form should allow the passive income to keep ticking higher.

A fiery opportunity within the FTSE 250

Bodycote (LSE:BOY) is a world-leading provider of thermal processing services. Put simply, it takes some metals, throws them into a glorified oven, and heats them under specific temperatures and pressures to manipulate their material properties. The process drastically improves the strength, toughness, and durability of metals and alloys—an essential trait for almost all machinery components today.

The FTSE 250 company has been around for almost a century. It started out as a small textiles business in 1923. After a long trail of acquisitions, mergers and demergers, Bodycote now serves over 40,000 customers with 185 facilities across 23 countries.

It has successfully built a strong reputation for excellence within the industrial sectors. Given the skill and precision required to correctly heat-treat metals, I believe its reputation has granted quite a high level of customer loyalty, as well as pricing power. Even if a competitor offers cheaper rates, I don’t believe this alone would be enough to convince existing customers to switch.

Playing with fire can be a risky business 

As previously stated, Bodycote’s brand appears to be held in high regard by its customers and the industrial sectors in general. While this has undoubtedly granted it some competitive advantages, it also adds additional pressure. 

Industrial manufacturing companies typically rely on a ‘just-in-time’ supply chain. This is particularly important since Bodycote’s services are quite dangerous to perform. Accidents can happen. And while strict safety precautions help mitigate this risk, it will always be a present threat. If such a tragedy occurs, the disruptions will likely lead to delays in orders that will compromise its reputation.

Another risk to consider is the international operations themselves. By having facilities outside the UK, the business should be quite resilient to any impact from Brexit. However, an unfortunate side effect of operating internationally is exposure to fluctuating currency prices from both a sales and expenses perspective.

Bottom line: is Bodycote a FTSE 250 share to buy now?

Treating metals is not the most glamourous sounding business. But the process is essential to industries such as aerospace, energy, and manufacturing. All of these sectors have been heavily impacted by Covid-19, and these disruptions have consequently been passed onto Bodycote. As a result, revenue and profits in 2020 took a significant hit.

But now that factories are re-opening, the demand for thermal processing services is back on the rise. And Bodycote is still a leader within this space. That’s why I think now could be the best time to add the stock to my portfolio.

Of course, buying stocks and shares may not be for everyone. Investors should only invest what they can afford to lose. Returns are never guaranteed. However, I’m comfortable with the level of risk investing involves. As such, I’m always looking for opportunities.

And with that in mind, here are my top three shares to buy today. 

FTSE 250 stocks 

Spirent Communications (LSE: SPT) provides engineering services for the information technology sector. The company has recently been rolling out infrastructure to help with the 5G data revolution. Demand for its services is currently running high. City analysts forecast earnings growth of 10% for the business in 2020. 

As the world becomes more and more reliant of technology, I think the business will see a prolonged period of growth. That’s why I believe this is one of the best shares to buy today and would add it to my portfolio.

While the company does face risks, such as increased competition and rising costs, it has managed these challenges well in the past, although that doesn’t guarantee future performance. What’s more, if the corporation makes a grave mistake, which ends up causing a client to lose data, it could suffer severe reputational damage, so that’s something I’m going to watch out for. 

Shares to buy today

Thermal processing is a niche technical industry. However, it’s one Bodycote (LSE: BOY) specialises in, providing heat treatment services for clients worldwide. Bodycote is one of the largest players in this sector globally, giving it a competitive advantage. It can offer customers lower prices due to economies of scale. Moreover, customers can trust the business to produce a quality product. 

These qualities have helped the FTSE 250 business go from strength to strength over the past few years.

However, the company is exposed to similar risks as Spirent. It may have a good reputation, but that means the pressure is on to maintain quality. Customers could leave the business if it decides to cut corners to improve profit margins. An economic downturn may also lead to reduced demand. Despite these risks, I think this is one of the best shares to buy today, based on its competitive advantages. 

FTSE 250 engineering group Weir (LSE: WEIR) has similar qualities to the two companies outlined above. It produces critical components for the resource industry, such as pipes and valves. These aren’t the sort of products customers want to go wrong, as the costs of a broken pipe can be high. That’s Weir’s advantage. It’s a trusted provider that has been engineering products for clients for decades.

Unfortunately, this industry is highly cyclical. The company’s earnings can and do gyrate significantly based on economic cycles. Therefore, a prolonged economic downturn may cause significant pain at the group. This suggests the business may not be suitable for all investors. 

Nevertheless, companies with competitive advantages like Weir are few and far between. That’s why I’d buy this engineer despite its exposure to the highly cyclical resource industry. 

Bodycote is a leading provider of heat treatment and specialist thermal processing. The company offers services such as case hardening (hardening the surface of a metal object) and annealing (used to reduce hardness and eliminate internal stress). It also produces tools that help with metal joining and the application of specialised coatings designed to prolong the working life of engineering components.

A good investment

This isn’t a glamorous business, but it’s an essential one and, in my opinion, this makes Bodycote an exceptional investment proposition.

You see, customers of companies like this don’t tend to shop around too much. They like to stick with trustworthy suppliers, and that’s just what the company has been since it was founded in April 1953.

Thanks to this customer loyalty, as earnings have risen, the company has been able to increase its dividend every year for more than a decade. It doesn’t look as if this trend is going to come to an end anytime soon.

Based on fiscal 2018 figures, the dividend is covered nearly three times by earnings per share. The dividend yield currently stands at 2.2%, which is below the market average. But considering Bodycote’s dividend track record, I reckon it is worth accepting the lower distribution as a trade-off for dividend safety.

Analysts reckon management will hike the payout by 19% this year, taking the yield to a more attractive 2.7%. So, if you’re looking for an FTSE 250 dividend hero, I highly recommend taking a closer look at this British engineering success story.

Highly profitable

Another dividend champion I wouldn’t hesitate to add to my portfolio today is soft drinks group AG Barr (LSE: BAG).

Barr has an excellent dividend track record, having paid out some portion of its profits to investors every year for decades. Recently, the payout has grown at a compound annual growth rate of around 9% since 2010, and it doesn’t look as if this trend is going to change anytime soon.

The company is highly profitable and, at the end of its latest financial period, it reported a net cash balance of around £22m. For fiscal 2019, Barr’s return on capital employed — a measure of profitability for every £1 invested in the business — came in at 19%, putting the business in the top 25 most profitable businesses in London.

Unfortunately, Barr’s success is no secret, and as investors have flocked to the business, its valuation has exploded. The shares are currently changing hands at an eye-watering forward P/E of 28.

Still, even though this is above what I would usually be willing to pay for any business, I think this multiple is acceptable for such a profitable, well-managed enterprise. It currently supports a dividend yield of 1.9%, and the payout is covered twice by earnings per share, leaving plenty of room for further growth in the years ahead.

Bodycote’s forte is metal thermal processing or, to put it simply, heating and cooling down metal to give it the requisite characteristics. Actually, most metal-based products undergo some form of heat treatment to ensure that they are fit for purpose. As a subcontractor, the company provides a vital link in the manufacturing process for virtually every market sector.

As you may imagine, many organisations have the capacity to carry out the mature processes involved in heat-treating metal parts. Where Bodycote fits in is offering more advanced procedures, which are the culmination of more than 100 years of experience and research. These advanced techniques are often based on proprietary technology and are employed when more precise heating and cooling are necessary.

As with everything these days, the march of technology is relentless, even in the business of heating metal. Within the specialist technologies division of Bodycote are half a dozen highly differentiated, early-stage technologies with high margins. For these state-of-the-art techniques, Bodycote is either the market leader or one of the top players. A review of the latest annual report reveals that this division is growing at a healthy 12% annually and no doubt contributed to the increase in profitability.

Financials

Back in 2014, the company rewarded investors with a dividend of 14.4p per share. Holders of the stock for year ending 2018 enjoyed an additional 19.0p, which represents a whopping 31.94% increase. Net profit has also seen stellar increases. Again, for the year ended 2014 profits were £79.4 million, however, by 2018, profits grew by almost 30% to reach £103.2 million. A similar picture for revenue was also experienced. For the same period income rose from £609.1 million to reach £728.6 million.

On top of the technological attractions for investing in Bodycote, there are some healthy numbers to consider. Whilst many manufacturers have enormous debts, Bodycote is debt free with around £30 million in the bank. In addition to the cash, the company has a revolving £230 million credit facility to fund expansion or to pay for its stated goal of acquiring bolt-on businesses. Those who wish to put their hard-earned cash to work may also wish to mull over the growth in revenue, profit and dividend over the last five years.

It is not enough to have superior technology when you are a critical part of the supply chain for manufacturers. Suppliers need to be close to their customers so that costs can be competitive and components can be delivered in a timely manner. To this end, Bodycote has established over 180 locations in 23 countries from which to support its clients. Naturally, having such a huge worldwide presence represents a considerable advantage for many global enterprises.

For investors fretting about the impact Brexit will have on British companies, Bodycote may offer some degree of comfort. Even though Bodycote is a British company, 92% of the group’s revenue is obtained outside the UK.

To sum up, Bodycote’s technological lead in metal processing, an excellent financial condition and a truly global footprint make a compelling case for investment.

While the crypto asset may have some use as a store of value, I think investors would do better buying shares in companies like Bodycote (LSE: BOY) if they want to get rich.

Time to buy?

Bodycote is somewhat of a unique, specialist business. The company designs and manufactures thermal technologies for specialist markets like defence and aerospace. More specifically, the group produces technologies that help companies use heat in manufacturing processes like nitriding, carburizing, annealing and tempering, among others.

As it turns out, the demand for these services is running hot. Today, the company reported better than expected results for its financial year ending 31 December 2018. Revenue grew 6.7% overall with double-digit growth at its Specialist Technologies business and Civil Aviation revenue up 8%. 

Overall, operating profit increased by 12% and return on capital employed — a measure of profit for every £1 invested in the business — rose to 20.5%, from last year’s reported figure of 19.3%.

Management is so pleased with these numbers it’s decided to reward shareholders with a special dividend of 20p per share.

Built for the long term 

When I look at Bodycote, I see an enterprise that has many of the qualities I look for in attractive long-term buy and forget investments. The company has a business that’s difficult to replicate and its high return on capital employed tells me that the business dominates the markets it operates in. 

With this being the case, I think the stock’s current valuation of 14 times forward earnings isn’t too expensive considering the specialist nature of the business. On top of this, there’s a 2.5% dividend yield on offer for investors — that’s excluding today’s special payout.

Bodycote might not be as exciting as Bitcoin, but if you’re willing to buy and forget this stock, I think it could create a tremendous amount of wealth for shareholders over the next 20 years.

Compounding wealth 

I’m also highly optimistic about the outlook for Bodycote’s FTSE 250 peer John Laing Group (LSE: JLG).

If you’ve not heard of John Laing, it specialises in managing and investing infrastructure projects. Infrastructure is the perfect long-term asset because developments such as roads and bridges are built to last for decades, generating an equally long-term income stream for investors.

Book value growth is the best way to evaluate an infrastructure business and how effective it is at creating value for shareholders. 

Over the past six years, John Laing’s book value per share has grown at a compound annual rate of 24.6%. Including dividends to investors (the dividend yield stands at 2.6% today) the stock has produced a total return of 27.5% per annum over the three years it has been a public business.

At this rate of return, every £1,000 invested will double every 2.6 years. Indeed, if you had invested at the IPO in 2015, your investment would have already doubled in value. And, according to my numbers, if John Laing continues to compound shareholder wealth as it has done since its IPO, in two decades time, every £10,000 invested will be worth £2.3m. With these returns on offer, it’s difficult to argue that Bitcoin is the better buy.

The analysts believe short-term political uncertainty is putting investors off, although they also go on note as saying this could be a tremendous opportunity for long-term investors.

I agree with Morgan’s view. Yes, the outlook for the UK economy is uncertain, but there are plenty of other companies in the FTSE 250 with an international focus, such as BBA Aviation (LSE: BBA) for example.

British success story

BBA is a great British success story. Founded in 1897 and public since 1964, today the company is one of the largest providers of aviation support services globally. 

This business isn’t glamorous, but it’s essential. The group is separated into two divisions, Flight Support, and Aftermarket Services, which keep planes in the sky and heading in the right direction. And rather than focus on the general aviation market, BBA’s primary business is managing private jets, which I believe gives the company an edge over others in the sector. 

Over the years, BBA has built itself up through a combination of organic growth and bolt-on acquisitions, the latest of which is Firstmark Corp, an aftermarket service provider, for a consideration of $97m.

In my mind, BBA’s niche but essential business gives it great dividend credentials. Organic growth topped up with select acquisitions should support dividend growth. Meanwhile, the essential nature of the business should ensure no sudden drop in income, which is usually why companies are forced to slash distributions.

City analysts have the company paying out $0.14 per share for 2018, rising to $0.15 for 2019. These estimates give a dividend yield of 3.7%, which isn’t that exciting. However, it’s the longevity of the payout that excites me. For the reasons listed above, I believe you can rely on BBA for income for many decades to come.

Steady growth 

Another FTSE 250 income stock that I believe has exciting long-term prospects is Bodycote (LSE: BOY). 

Once again, Bodycote is not a household name, but it’s good at what it does, namely providing thermal processing services in countries around the world. These processes are essential in manufacturing industries such as aerospace and defence, where precision and reliability counts for everything.

Bodycote’s position in the industry has helped the company grow net profit by 52% over the past six years. Analysts are expecting earnings per share (EPS) growth of 13% this year, followed by an increase of 6% next year.

As earnings have grown steadily over the past decade, management has rewarded shareholders with steady dividend growth. Since 2012, the group’s dividend payout has increased at a compound annual growth rate of 7.2%. 

Unfortunately, like BBA, the dividend yield disappoints because shares in Bodycote only yield 2.2% at the time of writing. Nevertheless, it’s the company’s established reputation and steady growth that gets me excited about its prospects. 

It seems management is also optimistic about what the future holds. CEO Stephen Harris recently made his first acquisition of the company’s shares, spending £100,000 to snap up just over 11,000 shares.

Bodycote is a stock to buy today and hold for years, in my opinion.

With the company’s share price hitting record highs, should investors pile in and ride the momentum?

Expectations-beating

At £234m, group revenue was 7% higher (or 10% at constant currency) year-on-year over the four months to the end of April. 

Broken down, revenues at its Aerospace, Defence and Energy (ADE) division climbed 5% to £94m.  Although income connected to civil aerospace was impacted by lower demand in France, overall growth of energy revenues hit 24% over the reporting period (thanks to a strong performance in North America). 

Elsewhere, Bodycote’s other arm — Automotive and General Industrial (AGI) — saw a 9% increase to £149m with car and light truck revenues rising 8%, partly thanks to “strong growth in Emerging Markets“.

Pleasingly, the £1.8bn cap’s balance sheet continues to look robust with a net cash position of £45m at the end of the reporting period — £5m higher than at the end of the last calendar year. While its growth credentials mean that it’s unlikely to be a priority investment for income seekers, confirmation that management had approved a 25p per share special dividend in addition to the final payout of 12.1p per share will no doubt be welcomed by its owners. 

Looking ahead, Bodycote believes full-year revenue will now come in higher than expected and that operating profit will slightly exceed analyst predictions.

At 18 times earnings before today, however, its stock was already looking pricey relative to industry peers. So, while today’s positive numbers suggest that investors should expect to pay a premium, I’d be tempted to wait for a likely period of profit-taking to subside before moving in. 

Is the recovery on?

Another riser today was banknote designer and manufacturer De La Rue (LSE: DLAR) — a company which made headlines earlier in the year after losing the tender to produce the new, post-Brexit blue passports to Franco-Dutch competitor Gemalto.

Having grown accustomed to profit warnings, investors appeared relieved with the mid-cap’s latest set of full-year numbers.

In the 12 months to the end of March, group revenue rose 7% to slightly below £494m. As expected, adjusted operating profit fell (by 11% to £62.8m), although this rose 7% when its now-sold paper business is excluded from calculations. 

De La Rue’s goal to evolve into “a less capital-intensive, more technology-led business” appears to be going well with CEO Martin Sutherland stating that its non-printing divisions — focusing on areas such as security, product authentication and traceability — now contribute more than a third of total revenue and over 50% of operating profit. 

News that net debt had reduced by £71m to just under £50m was also cheered. It was the lowest for five years and was thanks to the Basingstoke-based business receiving £60.3m cash from the aforementioned sale. 

With the full-year dividend unchanged at 25p, the 12-month order book 6% up (to £363m) on the previous year, new strategic partnerships, and increased R&D investment, I wouldn’t be surprised if value hunters and contrarians were to begin reassessing the company.

At 12 times forecast earnings for the new financial year and continuing to register excellent returns on the capital it employs, today might just mark the beginning of a sustained recovery for De La Rue.