Some investors prioritise capital growth through a rising share price; some prioritise income growth from a rising dividend. But some shares — growth-and-income shares — offer investors a bit of both.
J Sainsbury (LSE: SBRY) (NASDAQOTH: JSAIY.US), Centrica (LSE: CNA) (NASDAQOTH: CPYYY.US) and Rexam (LSE: REX) are three companies from the UK’s elite FTSE 100 index that have grown both their earnings and dividends faster than inflation and are forecast to continue doing so.
Sainsbury’s delivered earnings-per-share (EPS) growth of 9% for the year ended March 2013, beating analyst forecasts. The analysts see EPS growing at 6% a year for the next two years.
Forecasts on the dividend are for annual growth to continue at 2013’s rate of a bit less than 4% for the time being. This lower rate of growth than EPS would see dividend cover rise to around two times — closer to that of the company’s rivals.
At a recent share price of 388p, Sainsbury’s is trading on a current-year forecast price-to-earnings (P/E) ratio of 12.1 with a prospective income of 4.4%. These metrics look attractive with Tesco and Wm. Morrison Supermarkets both currently struggling to grow earnings.
Centrica, the owner of British Gas, increased both EPS and its dividend by 6% last year. Analysts see EPS growth comfortably above 3% this year — with 7% to follow for 2014. Forecasts are for annual dividend increases to continue at 6% both this year and next.
At a recent share price of 392p, Centrica is trading on a forecast P/E of 14 with a dividend yield of 4.4%. These metrics put the company on the value side of the FTSE 100. Sector peers National Grid and SSE both offer a high starting income, but there are stronger EPS and dividend-growth expectations for Centrica.
Drink cans manufacturer Rexam posted a 5% increase in EPS for 2012. Analysts see growth edging up to 6% this year, and accelerating to 12% in 2014. The City experts are forecasting double-digit dividend growth for both years, well ahead of 2012’s decent increase of 6%.
At a recent share price of 500p, Rexam is trading on a below-market-average forward P/E of 12.3, and a market-average income of 3.3%. Furthermore, you won’t find too many FTSE 100 companies with EPS and dividend-growth forecasts as strong as Rexam’s
Growth and income
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> G A Chester does not own any shares mentioned in this article. The Motley Fool owns shares in Tesco and has recommended shares in Wm. Morrison Supermarkets.