Questor share tip: KCOM's 5pc dividend

KCOM
99.2p+1.1
Questor says BUY

HULL-based telecoms group KCOM provides investors with a forecast dividend yield of 5pc that management has said will increase by 10pc for the next two years. So, trading in line with forecasts, the shares are worth considering for income alone.

The North-East-based telecoms group provides telephony and broadband services to homes and businesses in the area. The company has a strong regional brand, formerly known as Kingston Communications, and has been in business since 1882 when it operated a telegraph system. The company was listed in 1999 and is now a member of the FTSE 250.

Telecoms companies have stable revenue as customers tend to renew fixed line and broadband packages with the same provider. KCOM reported revenue down 2pc to £185.5m and pre-tax profits down 1.5pc to £25.8m for the six months ended September 2013. Analysts expect results for the full year to provide revenue of £374m, pre-tax profits of £51.3m, giving earnings per share of 7.65p. KCOM said yesterday that trading was in line to hit those targets.

The company said in January that it had been named preferred supplier for a substantial contract with a government department. This should help support the full-year numbers for next year.

KCOM is certainly not a growth stock, but with the shares rated on 12.8 times forecast earnings it doesn’t really have to be. The company also has very little to do to hit analysts’ targets. The company is forecast to have flat revenue and slightly falling pre-tax profits in the year ended March 2015.

KCOM’s strength is its cash generation as the company made £50m in the year ended March 2013, which more than twice covers the dividend. Questor thinks the shares are a buy for that full-year dividend of 4.86p that is forecast for a double-digit increase.