3 Great FTSE 100 Growth-And-Income Shares: HSBC Holdings plc, Legal & General Group Plc And NEXT plc

Outpace inflation with HSBC Holdings plc (LON:HSBA), Legal & General Group Plc (LON:LGEN) and NEXT (LON:NXT).

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Piggy bankSome 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 Holdings (LSE: HSBA) (NYSE: HSBC.US), Legal & General Group (LSE: LGEN) and NEXT (LSE: NXT) 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.

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HSBC

Banking titan HSBC increased earnings per share (EPS) by 14% last year and lifted its dividend by 9%.

The group, which operates across 74 markets, including the world’s top 15 wealthiest countries, last week reported a weaker first half than H1 2013, but was nevertheless confident that “our continuing ability to generate capital supports both growth and our progressive dividend policy”.

Analysts see a 7% EPS rise for the full year, and another 7% for 2015, with the dividend increasing at the same rate.

At a share price of 628p, HSBC trades on a current-year forecast P/E of 11.7, which is on the value side of the FTSE 100?s long-term average of 14. The prospective dividend income is 5% — fully one-and-a-half times the 3.3% offered by the wider market.

Legal & General

Insurance and asset management group Legal & General delivered 10% EPS growth last year and hiked its dividend a whopping 22%.

In half-year results announced last week, L&G reported a 9% rise in EPS. The Board expressed its “confidence in the strength and growth prospects for the business”, and again upped the dividend well ahead of earnings — by 21% (the ex-dividend date is 27 August).

Management’s policy for this year and next is to reduce net cash dividend cover to 1.5 times. Net cash generation growth is running ahead of EPS growth, and combined with the policy of reducing cover, the dividend will continue to rise faster than EPS.

Analysts are forecasting EPS growth of 12% this year with the dividend rising 17%, followed by 9% EPS growth in 2015 with a 13% increase in the dividend.

At a share price of 238p, L&G trades on a current-year forecast P/E of 14 (in line with the Footsie long-term average), and offers an above-market-average income of 4.6%.

NEXT

Fashion retailer NEXT has delivered five consecutive years of EPS and dividend growth of over 15%. The latest year saw both earnings and the dividend increase by 23%.

At a current share price of 6,750p, NEXT is on a premium P/E rating of 16.6, while last year’s dividend payout of 129p gives a trailing yield of just 1.9%.

However, the company has a policy of buying back shares when management judges they’re attractively valued (currently up to 6,600p), and of returning surplus cash to shareholders via special dividends if the shares are above the buy limit. The policy has seen three special dividends totalling 150p paid this year.

The Board recently said it doesn’t envisage paying further special dividends this year, but will buy back more shares if the price falls below the buyback limit. As such, new investors will only see an ordinary dividend this year, with a forecast yield of around 2.2%.

However, analysts are expecting more special dividends next year, and forecasts of a total payout of about 380p give a juicy yield of 5.6%.

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G A Chester has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned.

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