When it comes to share price appreciation and creating a growing passive income, here are three growth shares that I think have a lot of potential.
The first is consumer products seller Up Global Sourcing (LSE: UPGS). Recent full-year results showed how well it is doing despite supply chain disruption and increased freight costs. Revenue was up 17.9%, while profit before tax was up 13.7%.
The acquisition of Salter Brands should have a significant impact on earnings next year, which could in itself boost the share price.
Up Global Sourcing could be a great passive income share because earnings are growing strongly and the dividend has risen to 5.02p this year — a big rise from last year’s 3.96p. Dividend cover remains more than twice above earnings, so there’s no indication the dividend is in any danger of not growing.
Up Global Sourcing is acquisitive, which is a risk and net debt has increased as a result, but overall I think the shares could create a good, sustainable passive income.
Quality company and great passive income
Impax Asset Management (LSE: IPX) strikes me as one of the best growth shares for passive income and share price appreciation around. Earnings per share are consistently very high, margins are high as is usual in the asset management industry, and dividend growth has been very good indeed.
Revenue growth, which is important to measure when it comes to growth shares in my opinion, has been incredibly good. From 2016 to 2020 revenue went from £21.1m to £87.5m, while net profit soared from £4.18m to £17.6m. That rate of growth both in revenue and profit shows the quality of the company. It’s also very cash generative, as evidenced by the huge amount of cash on the balance sheet. This should protect investors in any downturn in the economy and indeed help Impax to pay a dividend even if growth for any reason were to slow down.
The only real issue I have is with valuation and dividend cover. The shares are undoubtedly expensive on a forward P/E of 27.2. That’s not completely out of kilter with other asset managers but it is higher than many other growth shares. Also, the dividend cover is below two, which is lower than I’d like to ideally see. Overall though, if the price fell, I might consider picking up some shares for the huge share price growth and passive income potential.
A quick look at another option
A final option is a little-known UK company called Hargreaves Services. It’s not to be confused with Hargreaves Lansdown, which is completely separate. The former, and the one I’m concerned with, grew its dividend by 327% from 2020 to 2021. Of course, that did follow a pandemic-induced dividend cut in 2020 but still it’s phenomenal growth. It’s a small-cap and its financials aren’t the best, but if it can turn around successfully, it offers potentially one of the best passive incomes from a smaller company.
There are a lot of shares in the UK that can offer investors passive income. For me, though, these three growth shares — which combine income alongside the potential for major share price growth — are ideal investments. I’d be happy to add all three to my portfolio right now.