Today I’ll be taking a look at a strategy that sits between pure growth and income plays. I’m going to be looking for companies that are likely to provide growth to long-term holders, combined with a healthy yield, allowing holders to be paid whilst they wait. I’ll be looking at three companies in different industries.
Berkeley Group
Despite worries about housing bubbles in and around the capital and the surrounding areas, Berkeley Group Holdings (LSE: BKG) has continued to prosper. A quick look at the chart clearly shows that it has performed very well against the FTSE 100 over the last three years — add in the rising dividends, and the return is boosted further.
Clearly, the question is: what do the next three years hold? On this front, the company recently guided that it was trading in line with recent guidance for the full years ending 30th April 2015, 2016 and 2017, and confirmed that it intended to distribute the second tranche of the capital return to shareholders (£4.34 per share) by September 2018.
True, this is a cyclical company; however, it seems to have good visibility going forward. Combine that with a rather undemanding forward P/E of around 10 times earnings and a prospective dividend yield approaching 7%, and I think that this is a reasonably priced share with good potential and an above-average yield, well worthy of your consideration.
Legal & General
Readers may be surprised by Legal & General Group (LSE: LGEN) after the market seemed to go cold on the company when George Osborne announced that pensions were to be shaken up. As you can see, there will be a group of very happy holders for this FTSE 100-beating company.
Following its recent results announcement, it was clear that market fears were overblown (as they often are) and the company was still growing organically. There are five macro trends driving their strategy:
- An ageing population;
- The globalisation of asset markets;
- Welfare reform;
- Digital connectivity;
- Bank retrenchment which create long-term growth opportunities for them.
In short, they are starting to provide pension and asset management solutions for companies and individuals, and alternative finance where banks have been reluctant or unwilling to lend. They will grow this organically but may also acquire if appropriate.
With the economy growing and banks still being unwilling to lend, there is decent growth to be had here — and not just for L&G. With the shares trading on a forward P/E of around 15 times earnings and yielding almost 5%, there could be a good runway ahead for long-term investors.
Schroders
Perhaps a less well-known stock, and one which requires investors to look a little deeper. Schroders (LSE: SDR) (LSE: SDRC) is a UK-based asset management company. The company operates in two segments: Asset Management and Wealth Management. A brief glance at the chart, as with all of the shares here, shows clear outperformance. I’ll be paying particular attention to the shares with no voting rights.
In essence, this is the only difference with the two classes of share on offer — they are equal in every other way. The main difference is the price, the shares with voting rights trade on a forward P/E of nearly 18 times earnings with a yield of less than 3%. On the other hand, the shares without the right to vote currently trade on a forward P/E of just over 13 times earnings, and yield around 3.5%. Whilst the ability not to vote may put some investors off, I think that it could be a smart way to gain access to a quality company for less cost. Whilst this is the lowest yielding share under review, I expect them to grow well in excess of inflation and the pitiful return from cash on deposits. In addition, brokers are more positive on the company and upgrading their earnings expectations, all adding upwards pressure to the price.
In Summary
Here we have three shares, which look set to provide decent growth, mixed with above-average and — perhaps more importantly — a growing yield. When combined, these factors can have a very positive effect on investors’ portfolios.
