The first of these is FTSE 250 aviation and energy firm Stobart Group (LSE: STOB). This firm has been in the headlines recently as a result of boardroom infighting. But for investors, the stock’s main appeal is a substantial infrastructure property portfolio and an 8% dividend yield.

The Stobart name has strong brand recognition through its road haulage operations. But this business was floated into a separate stock market listing, Eddie Stobart Logistics, last year.

Stobart Group is now focused on running London Southend Airport, a small regional airline and an aviation services business. The group also runs an energy business supplying biomass fuel to UK power stations.

An affordable 8% yield?

Broker forecasts suggest Stobart will pay a dividend of 18.3p per share this year, giving a whopping forecast dividend yield of 8%. But the business is only expected to generate earnings of 4.6p per share. At first glance, the dividend looks unaffordable.

However, the secret to this bumper payout is the group’s portfolio of non-operated property assets. These are gradually being sold to fund the dividend.

While this process is ongoing, Stobart is investing in its airport and energy businesses. Management is targeting 5m passengers per year at Southend by 2022, up from “over one million” last year. Rapid growth may be helped by a recent deal with Ryanair to build an operating base at the airport.

The company also hopes to increase biomass volumes from 1.3m tonnes to 3m tonnes by 2022.

If these growth projects are successful, I think this business could deliver attractive gains for shareholders. As with any growth stock, there’s some risk involved. But progress appears good so far, so I’d rate Stobart as a speculative buy.

This could be a safer choice

FTSE 250 firm John Menzies (LSE: MNZS) also operates in the aviation services sector, providing a range of ground services at airports in the UK and overseas. This is a much bigger business than Stobart’s, with annual aviation-related nearly 10 times greater than the smaller firm’s.

Menzies is also known for its newspaper and magazine distribution operation, which makes early morning deliveries to retailers. But this division is in decline and being sold off, to leave behind a pure-play aviation business.

Aviation focus could boost growth

Today’s half-year results give us a flavour of what to expect. Half-year revenue from continuing business was £641m, with an underlying operating profit of £20.9m. This contributed 13p per share to group earnings of 25p per share.

The sale of the distribution business will result in some loss of earnings, but this should be offset over time by aviation earnings growth. Last year, profit margins in aviation were roughly twice as high as in distribution, so if this business continues to expand, profits could perform strongly.

In the meantime, the board plans to maintain the current dividend, which gives the stock a forecast yield of 3.2%.

As with Stobart Group, Menzies’ aviation business isn’t without risk. But air travel continues to be a growth market. This mid-cap firm is becoming quite a large player in the aviation services sector, which should help to control costs.

I’d consider these shares as a potential dividend growth buy.

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Furthermore, with stock markets having risen in recent months, valuations may now be less appealing than they were previously. As such, obtaining a wide margin of safety may prove to be more challenging.

However, some stocks continue to offer an impressive long-term outlook. Here are two prime examples which could be worth a closer look today.

Positive outlook

Friday saw aviation services and distribution specialist John Menzies (LSE: MNZS) release a trading update for the first four months of the year. It has experienced a positive start to the year, with the company trading ahead of the comparable period.

In its aviation division, trading has been positive, with strong cargo volumes continuing. Ground handling and fuelling volume are in line with expectations and have experienced strong contract momentum. Similarly, the distribution segment of the business has experienced relatively strong performance. It is in the process of being sold, although it is taking longer than expected. The company remains engaged with a number of potential buyers, and expects further updates in the short term.

With John Menzies forecast to post a rise in its bottom line of 4% in the current year and 7% next year, it seems to have a bright outlook. Despite this, it trades on a price-to-earnings growth (PEG) ratio of 1.6, which suggests that it could offer a wide margin of safety. As such, it could be worth a closer look for long-term investors.

Turnaround potential

Also offering an upbeat long-term future is FTSE 100 consumer goods company Burberry (LSE: BRBY). The business has experienced a difficult period which has been full of change. It has refreshed its management team and is set to deliver a new strategy that will see it focus to a greater extent on much higher-end products. This will also include a store closure programme, with capital expenditure expected to increase as it seeks to deliver a more luxurious customer experience.

With Burberry forecast to report a fall in its bottom line in the current year, investor sentiment could come under a degree of pressure. However, the company is expected to return to positive growth next year, with earnings forecast to rise by around 5%. This has the potential to boost investor sentiment in the stock, and could mean that it has further capital growth prospects following its 12% rise in the last month.

Certainly, a period of major change brings significant risk and uncertainty. But with such a strong brand and a high degree of customer loyalty, Burberry seems to be in a strong position to perform well in the long term.

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But the shares have doubled in the past two years, as the company’s recovery looks like it’s firmly established and growth is back on the cards.

After several years of falling earnings, a return to EPS growth last year with a 43% boost halted the trend, and analysts are forecasting a further 15% lift this year, followed by 12% next.

Interim results released in August showed a strong performance from Menzies Aviation (going “from strength to strength” according to chairman Dr Dermot F. Smurfit), with Menzies Distribution tagging along “in line with expectations“. 

Trading update

A trading update Thursday reinforced the firm’s positive outlook, telling us that it has “continued to trade well since the half year” and that full-year expectations should be met.

The big challenge is going to be the splitting of the two divisions into separate companies — many investors have wondered for years why the two disparate businesses are being run under the same umbrella. 

To that end, the firm has appointed Rothschild to help with a strategic review which would asses “the optimum route to split the group and create two strong focused players in their respective markets,” and we should know what’s due to happen by March 2018.

Meanwhile, the dividend is powering up ahead of inflation, and with yields currently around 3% and a P/E at around 12, I see a chance to lock in that trend at a good price now. 

One of the best

For steady long-term earnings and dividend growth, you don’t need to look much further than Bunzl (LSE: BNZL), the international distribution and outsourcing group.

Earnings per share have grown 50% between 2012 and 2016, and forecasts would take that up another 12% by 2018. And the dividend should have risen from 28.2p per share in 2012 to 48.4p by 2018 — that’s a rise of 72% in six years, and way ahead of inflation. In fact, Bunzl has lifted its dividend for 24 straight years.

Dividend yields are currently only around the 2% mark, but that hides the effective future yields that can be had by locking-in to long-term progressive rises. In fact, had you bought Bunzl shares five years ago at around 1,020p, the predicted 2017 dividend would give you a 4.5% yield on that price — oh, and you’d also have enjoyed a doubling in the share price.

Expansion

The long-term prospects for expansion look good, after the company confirmed on Thursday that the acquisition of Hedis, Comptoir de Bretagne and Générale Collectivités in France has completed. 

Bunzl has also bought up Interpath, a Melbourne-based distributor of laboratory and healthcare consumables, and has agreed to acquire Talge of Brazil, a seller of various food service products.

With a company doing so solidly well, you probably wouldn’t expect the shares to be on a bargain basement rating. And you’d be right — at a 2,170p price, we’re looking at a forward P/E of 19 this year, dropping to 18 next.

But enduring quality is worth paying for, and compared to the long-term FTSE 100 P/E of around 14, I don’t see that valuation as too high at all — I see a bargain.

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John Menzies

£586m market cap John Menzies (LSE: MNZS) provides time-critical logistics and support services, operating through two segments, aviation and distribution. Menzies Aviation services the airline industry, offering services such as ramp and cargo handling, re-fueling and de-icing, while Menzies Distribution helps businesses move goods from one place to another, through a fleet of 1,900 vehicles. Each day, the distribution business delivers 300,000 units of products to over 25,000 destinations.  

The logistics specialist endured a rough patch between 2011 and 2015, with revenue stagnating and earnings falling, and the company cut its dividend in 2014. However, a turnaround now looks to be underway.

Interim results released this morning show a turnover increase of 21% to £1,217m, and a 43% rise in underlying operating profit to £30.1m. Underlying earnings per share rose from 18p to 21.8p, and the company hiked its interim dividend by an impressive 11%. Chairman Dermot Smurfit sounded upbeat about the results, stating: “overall, I am very pleased with the Group’s performance in the first half and we look to the future with confidence as demonstrated by the increased dividend payment.”

For the full year, City analysts expect revenue to jump 20% to £2,381m, and earnings per share to rise 14% to 54.5p. That consensus earnings figure places the stock on a forward P/E ratio of just 13.1. A dividend payout of 19.5p is also anticipated, equating to a yield of a healthy 2.7%. 

After rising from 530p to 720p over the last year, the share price has had a good run, however, with the stock’s valuation still looking attractive, there could be more to come, in my view.

Low & Bonar

Also trending upwards over the last year is Low & Bonar (LSE: LWB). The £284m market cap performance materials group specialises in designing and manufacturing components which add value to, and improve the performance of, its customers’ products.

Like John Menzies, Low & Bonar has struggled to generate meaningful revenue growth in recent years. However, things appear to be looking up, with City analysts pencilling in a top-line rise of 7.3% this year. Half-year results released in July saw revenue rise 16.4%, and adjusted earnings per share climb 25%. The company said that “overall, we remain confident of meeting the Board’s expectations for the full year.”

On consensus FY2017 earnings of 7.25p per share, the performance materials specialist does not look expensive, and currently trades on a forward P/E ratio of just 11.9. It’s also worth noting that the company has attractive dividend prospects, having raised its dividend in each of the last five years. Analysts forecast a dividend payout of 3.2p this year, equating to an attractive forward yield of 3.7%, covered 2.3 times. With these figures in mind, there could be potential for both capital growth and dividend growth here, in my opinion. 

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John Menzies (LSE: MNZS) was making headlines in Monday business after it decided to bang a planned merger with DX Group (LSE: DX) on the head.

The firms had been examining a tie-up since March, and in June a deal was struck that would have seen DX snap up Menzies’ distribution operations for £40m in addition to new shares worth 65% of the new company.

However, DX’s worrisome trading update in July, in which it advised it expected EBITDA to flatline in the fiscal year ending June 2016, forced Menzies to undertake additional financial due diligence. These steps had forced the company to conclude that “the combination would be required to be effected on revised terms,” it advised today.

And the Edinburgh business has decided to pull the plug in light of these developments. It commented that it “does not believe it is currently possible to agree a revised set of terms with DX for the combination which would be in the interests of John Menzies shareholders.”

The company “has therefore terminated discussions with DX,” it said.

Menzies added that there remains strategic merit by separating its Distribution and Aviation divisions into two independent businesses however, as well as the potential to create shareholder value.

Ready to fly?

While latest developments have prompted it to go back to the drawing board, Menzies still looks like an attractive destination for growth investors.

The City expects it to flip back into the black from the losses of recent years, with consensus suggesting earnings of 54p per share in 2017. And this predicted spurt is not expected to be a flash in the pan either, with an 11% bottom-line improvement is predicted for next year, to 61p.

I reckon a subsequent forward P/E ratio of 12.9 times is excellent value given the company’s resilience in tough markets. The business saw revenues at Aviation soar 12% during the four months to April, it announced in May, while it also noted that “contract gain momentum has continued with notable wins across each region.” And its Distribution arm was also trading in line with expectations, Menzies said.

I believe the company’s low valuation could leave room for further share price strength, particularly should the next set of financials (first-half numbers are slated for Tuesday, August 15) impress.

Road warrior

Hill & Smith (LSE: HILS) is another stock tipped to be a great bet for growth hunters.

The number crunchers expect demand for the FTSE 250 firm’s signs, barriers and assortment of other roadside decorations to keep driving northwards. And as a result, earnings are predicted to grow 10% in 2017, and by another 5% next year.

The Solihull business may not carry the same sort of value as Menzies however, its prospective P/E ratio of 18.9 times hovering above the broadly-considered value benchmark of 15 times.

But this should not necessarily deter investors, in my opinion, as Hill & Smith picks up traction at home as well as in the US — revenues were a record £291.8m during January-June, it advised last week, up 6% at constant currencies. And I anticipate that the top line will keep on bulging as infrastructure investment increases in both of the company’s key markets.

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This situation, though, does not yet appear to have taken place. Evidence of this can be seen in the low valuations of a number of high-yielding shares. Here are two examples which could be worth buying now for the long term.

Change of direction

Reporting on Tuesday was real estate investment trust (REIT) British Land (LSE: BLND). It announced a £300m share buyback programme for the current financial year. It has decided to engage in such a programme because it feels valuations are excessive and that acquiring new assets may not be the most efficient usage of capital. Therefore, while its shares trade on a relatively low valuation, it has decided to utilise a share buyback programme in order to improve shareholder returns.

Of course, the outlook for the UK commercial property market remains uncertain. Brexit has caused sterling to weaken and inflation to rise, which has knocked confidence in the wider economy. Therefore, it would be unsurprising for companies which are UK-focused to experience a difficult period from a financial perspective.

Despite this, British Land reports a robust trading environment at the present time. Furthermore, its shares are trading on a price-to-book (P/B) ratio of just 0.7, which suggests there is significant upside potential on offer. It also has a dividend yield of 4.9% which is covered 1.2 times by profit. This indicates that it could offer sustainable growth in shareholder payouts, which could make it a strong dividend share in the long run.

Growth potential

Also offering impressive income, growth and value appeal at the present time is logistics and support services company John Menzies (LSE: MNZS). It is expected to report double-digit growth following last year’s turnaround performance which saw its bottom line rise for the first time in over four years.

The company’s forecast earnings growth rate of 14% this year and 13% next year, however, has not pushed its shares onto a high valuation. John Menzies trades on a price-to-earnings growth (PEG) ratio of just 0.9, which suggests that it has considerable capital growth potential. Certainly, there is scope for a downgrade to its outlook, but with such a wide margin of safety it appears to be a worthwhile buy right now.

As well as this, it offers dividend growth potential. The company may yield only 2.9% at the present time, but with dividend payments covered 2.8 times by profit this could mean shareholder payouts grow at an even faster pace than profit over the medium term. The end result could be a strong income stock in the long run.

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However, that’s not the case with John Menzies (LSE: MNZS), which issued a positive trading update this morning. The firm has two arms to its business – newspaper and magazine distribution, and ground handling services in the aviation sector for passengers and cargo.

Positive change is afoot

Yet that could all be about to change in a way that enhances value for shareholders with the potential to boost the firm’s ongoing prospects. Read on to find out more.

Everyday operations like this won’t make you dizzy with excitement, but they could back a decent investment if you buy the firm’s shares. Indeed, the firm’s shareholders have done well up until now. Today’s update reveals revenue growth of 12% in the aviation arm for the first four months of the year driven by a flow of ongoing contract wins, and decline in sales of 3.1% in the distribution business.

The firm is growing its aviation business both organically and through acquisitions and chairman Dr Dermot F Smurfit said in today’s update: “Our aviation business continues to trade strongly. The opportunities that exist to cross-sell our new product lines and also to expand into new markets are very exciting and your board looks to the future with increasing confidence.”

A plan to boost the firm’s prospects

John Menzies’ distribution arm looks like it is in decline, though. To put things in perspective, around 58% of operating profit came from the aviation arm last year with the rest from distribution. However, the company is working on a deal to combine the distribution business with the operations of DX Group, which could lead to John Menzies selling the distribution business for cash and the issue of DX shares to John Menzies shareholders.

If the deal goes through, John Menzies shareholders will stand to gain from any efficiencies and synergies that may flow from the enlarged distribution business while also having the option to sell their new DX shares if they want to. The potential deal looks interesting to me and will remove the drag from the underperforming distribution business, turning Menzies into a higher-growth beast powered by the aviation business alone. Change like that can often drive accelerating returns for shareholders.

A modest valuation

Meanwhile, City analysts following the firm predict earnings will swell by 13% both this year and again during 2018. At today’s share price of 695p, the forward price-to-earnings ratio sits at just over 11 and the forward dividend yield is almost 3%. Those forward earnings should cover the payout almost three-and-a-half times, which is a decent level of cover from earnings suggesting the directors see opportunities to invest the firm’s incoming cash flow into further growth.

Even though John Menzies’ businesses have a lot of cyclicality inherent, I don’t think this is a stretched valuation and could look cheap if the firm manages to transform itself by ditching the underperforming distribution division.

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Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Specifically, managements announced this morning that the two firms are in talks regarding the possible sale of John Menzies’ distribution division. DX is proposing to buy the division off Menzies for £60m in cash and the issue of new shares representing 80% of its issued share capital after the deal closes. The cash consideration of the deal will be financed by new borrowings of the enlarged group.

A good deal? 

The deal looks on paper to be a sensible decision. Based on a preliminary joint assessment, the boards estimate that the combination would generate cost synergies in the range of £8m to £12m per annum — a sizeable figure compared to the acquisition price.

However, after the deal closes, it seems John Menzies’ shareholders will end up owning DX, which may not be a favourable outcome considering the company’s past mistakes. 

Under the terms of the deal, it is intended that the balance of the new DX shares issued to fund the merger will be issued to Menzies’ shareholders pro rata their holdings at the relevant date. On this basis, current DX shareholders would own in aggregate 20% of DX’s issued share capital with 75% of the company owned by Menzies’ investors. The remaining 5% of the group will be given to Menzies’ defined benefit pension scheme to meet pension obligations.

Still, on the face of it, this deal seems to make a lot of sense for DX’s investors. By combining with the distribution division, DX should be able to cut costs significantly and improve profit margins to turn around its operating performance. The company has been blighted by operational problems during the past year, and losses have ballooned.

Plenty of problems

Alongside today’s merger proposal, DX also announced its interim results for the six months ended 31 December 2016 this morning, revealing a loss before tax of £29.3m and an adjusted profit before tax of £0.6m, down from £2.4m for the same period a year ago. The company continues to restructure to improve returns and drive revenues, and it seems that the Menzies deal is part of this. But whether or not it will turn out to be a sensible acquisition in the long term is not clear. 

Considering the operational issues DX has reported over the past year, I’m sceptical of whether or not management can successfully integrate Menzies’ distribution business without any further problems. That being said, with the deal structured as it is, if DX  can’t manage with the larger operation then Menzies could easily swoop and acquire the rest of the business it does not already own. All in all, the  deal looks to make sense on paper but it remains to be seen whether or not DX’s management can successfully pull off a merger of this size.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

A great year

And I’m impressed by the job that John Menzies (LSE: MNZS) has been doing — after several years of falling earnings, the turnaround looks like it was well under way in 2016. Underlying pre-tax profit for the year to December rose by 30% to £49.7m (up 17% in constant currency), with underlying earnings per share up 26% to 47.8p and the dividend lifted 10% to 18.5p.

The share price lost a few pence in morning trading, to 575p, but after a near-doubling since December 2014, I can understand a bit of profit-taking.

The year was described as transformational, with chairman Dr Dermot F Smurfit telling us that the company completed the acquisition of ASIG on 1 February 2017 (which was part funded by a rights issue). And he talked of underlying profits at Menzies Aviation being “significantly ahead of last year at constant currency” while also being boosted by favourable exchange rate movements.

Menzies Distribution performance was broadly in line with the previous year.

With the board being “confident with the group’s outlook for 2017,” and City analysts forecasting a 12% rise in EPS for 2017 (followed by a further 11% in 2018), I see the shares as still offering good value despite the strength of their recovery to date.

We’re looking at forward P/E multiples of 11 for this year and 10 next, with PEG ratios of around 0.9. I can’t help feeling there’s some retail pessimism built into the price right now, and the company did speak of “increased cost pressures” in its Distribution division.

But I see investors as being unduly negative towards John Menzies right now, and I reckon in five years time we’ll be looking back at a bargain purchase.

Retail competitor

Perhaps the obvious comparison to John Menzies is retail competitor WH Smith (LSE: SMWH), though it doesn’t have quite the same diversification and is perhaps more at risk from retail pressures.

The WH Smith share price has been a bit erratic over the past 12 months, but over five years we’ve seen a 218% gain to today’s 1,747p. And though the high street might be facing its own problems, WH Smith has managed to keep its annual earnings per share growing nicely.

Results for the year to August 2016 looked good, with headline pre-tax profit up 7% and headline EPS up 9%, and the dividend was hiked by 11% to a yield of around 3%. On top of that, the firm announced a £50m share buyback and has been hoovering them up ever since.

Perhaps surprisingly in these early Brexit days, Smith’s travel business did very well with a 9% rise in profits.

What do the shares look like as an investment now? Well, I think new investors now have missed the recovery, and with the shares on P/E ratings of around the 16-17 level for this year and next, I don’t see a great bargain here.

I do see WH Smith shares as fair value for a healthy long-term investment, but with the economic uncertainty we’re almost certainly going to be facing over the next few years, I’m not seeing much of a safety buffer in the current valuation.

I wouldn’t sell WH Smith shares if I owned them, but if buying, I’d prefer to put my money into John Menzies right now.

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