Mid Cap First Group "Remains Committed" to a 12% Dividend Yield


LONDON -- FirstGroup (ISE: FGP.L) climbed 1 pence to 207 pence this morning after the mid cap's chief executive said he "remains committed" to the transport group's 7% dividend growth policy. FirstGroup's payout may therefore rise from 23.7 pence per share to 25.3 pence per share during the year, which would in turn support a potential 12% dividend yield.

Speaking today at FirstGroup's annual meeting in Aberdeen, chief executive Tim O'Toole said:

I am pleased to report that trading during the first quarter of the new financial year is in line with our expectations. As previously stated, 2012/13 is a year of transition for the Group.

We remain encouraged by the progress in our North American operations. In UK Rail we continue to see strong passenger and revenue growth and are focusing on service quality and delivery, while developing future opportunities. In UK Bus we are executing our plan to reform the operating model and achieve sustainable growth.

A profit warning in March has left FirstGroup's shares down 40% so far this year. Four months ago, the firm blamed a "further deterioration of economic conditions" in Scotland and Northern England for reduced margins at its U.K. bus division. Reduced government subsidies and rising fuel costs were also cited.

However, O'Toole today claimed that FirstGroup's wider U.K. bus operation had seen a 2% increase in like-for-like passenger revenue, as well as an "improvement in revenues trends" in Scotland and Northern England.

While FirstGroup's possible 12% income looks attractive, the transport group's recent problems might not make it the most dependable dividend investment this choppy market has to offer right now.

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