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.
HSBC (LSE: HSBA) (NYSE: HSBC.US), Reed Elsevier (LSE: REL) (NYSE: RUK.US) and Mondi (LSE: MNDI) 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.
International packaging and paper group Mondi has recovered strongly since the 2009 recession. The company delivered record financial results for 2013, reporting a whopping 37% rise in underlying earnings per share (EPS) and hiking the dividend by 29%. The chief executive said: “We remain confident in the Group’s ability to continue delivering industry-leading performance”.
City analysts see annual earnings growth settling down to 8% this year and next, with the dividend rising 16% this year, then in line with the 8% earnings growth in 2015. At a recent share price of 1,050p, Mondi is on a forecast price-to-earnings (P/E) ratio of 12.3 — on the value side of the FTSE 100 average of 16.5. Meanwhile, a dividend yield of 3.3% is in line with the market.
Reed Elsevier, the publisher and information provider to the medical, legal and business sectors, increased its EPS by 9% and its dividend by 7% in 2013. For 2014, the chief executive expects, “another year of underlying revenue, profit, and earnings growth”.
Analysts are forecasting both EPS and the dividend to rise at around 6% a year for the next two years. At a recent share price of 920p, Reed Elsevier’s current-year forecast P/E is just over 16, falling to nearer 15 for 2015, while the dividend yield is in the region of 3%. The shares aren’t far off their 52-week high, so perhaps one to watch for a dip.
In contrast to Reed Elsevier, HSBC is trading close to a 52-week low. The global banking giant posted 14% EPS growth for 2013, and lifted the dividend by 9%, but investor concerns about slower growth in emerging markets have weighed heavily on the shares since last summer. HSBC’s chief executive expects more volatility in 2014, but is “optimistic about the longer-term prospects of emerging markets”.
City experts are forecasting HSBC to deliver EPS growth into double digits for each of the next two years, with dividend increases not far behind the earnings growth. At a recent share price of 605p, HSBC has the lowest forecast P/E of the three companies I’ve featured — 10.5 — and the highest prospective dividend income: 5.4%.