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.
British American Tobacco (LSE: BATS) (NYSE: BTI.US), Aberdeen Asset Management (LSE: ADN) and AMEC (LSE: AMEC) 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.
British American Tobacco
British American Tobacco’s products are on sale in 180 countries around the world. Tobacco is a so-called ‘defensive’ industry — less sensitive to external economic conditions than many other sectors — and British American Tobacco’s geographical diversity adds to its defensive qualities.
The company delivered 6% earnings-per-share (EPS) growth last year and a 7% increase in the dividend. Management has reported a good start to 2013, and analysts are forecasting 8% earnings growth for both this year and next, with the dividend rising in line with earnings.
At a recent share price of 3,523p, British American Tobacco’s forecast price-to-earnings (P/E) ratio of 15.7 is a little more expensive than the FTSE 100 average of 15.3. But that doesn’t look an extortionate premium for such a reliable company, especially as the dividend yield of 4.1% is comfortably higher than the Footsie average of 3.3%.
Aberdeen Asset Management
Aberdeen Asset Management runs retail and institutional funds covering most of the world’s markets, but is particularly strong in Asia. The group is also focused mainly on long-only equities, so — as you would expect — the funds have performed well since the market lows of the financial crisis.
Aberdeen’s revenues, profits and dividend have likewise grown strongly. The company reported continuing momentum when announcing results for the six months ended 31 March: revenue was up 25%, underlying EPS up 43% and the dividend up 36%.
The recent wobble in global equity markets has seen Aberdeen’s shares drop to 387p from a high of 492p as recently as May. That puts the company on a below-market-average forecast P/E of 12.8 and above-market-average yield of 3.9%. The 21% drop in the share price looks a little overdone for a company that analysts are still expecting to deliver EPS and dividend growth in excess of 20% this year followed by high teens growth next year.
AMEC is officially classified in the oil and gas services sector, but also operates in the mining, clean energy and infrastructure markets. EPS growth over the past five years has been strong, ranging from 6% to 34%, with last year’s 14% rise around the average.
In April, the company reported that acquisitions made during 2012 were integrating well and management said: “We remain on track to achieve our targeted EPS of greater than 100p ahead of 2015”. That suggests annual EPS growth of at least 10% over the next couple of years; and analysts have penciled in dividend growth of a similar order.
At a recent share price of 1,027p, AMEC’s forecast current-year P/E of 12 and yield of 3.9% are attractive relative to both the sector and the wider market.
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> G A Chester does not own any shares mentioned in this article.