Transport operator Stagecoach (SGC) has cut its annual dividend by 35.2% for the year to 28 April from 11.9p per share to 7.7p amid concerns that cash flow would be unable to cover the payout.

Investors were disappointed by the decision and a £85.6m loss from the early termination of the underperforming East Coast rail franchise, causing shares in Stagecoach to hit a five-year low at 128.7p.

Following the dividend cut and share price fall, the dividend yield currently stands at 6.1%.

The contract is ending three years earlier than forecast in 2020 with the losses blamed on factors outside Stagecoach’s control.

In a further bout of bad news, the company warned operating profit in the UK rail division is expected to fall as bids for new opportunities are forecast to offset profit from East Midlands Trains.

One of these bids is for the new South Eastern franchise. Other potential opportunities include the West Coast Partnership and East Midlands rail franchises.

In the year to 28 April 2018, operating profit more than doubled from £47.3m in 2017 to £132.1m. But sales fell from £3.9bn to £3.2bn reflecting the end of the South West Trains franchise last August.

Canaccord Genuity analyst Gert Zonneveld says there are attractive opportunities in the medium term to further grow its transport operations.

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Issue Date: 28 Jun 2018