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.
Legal & General (LSE: LGEN), TUI Travel (LSE: TT) and Hammerson (LSE: HMSO) 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.
Legal & General
Legal & General, which offers a wide range of investment and insurance services, has bounced back strongly from the 2009 financial crisis. Last month, the group reported a 10% rise in earnings per share (EPS) for 2013, and hiked the dividend 22%.
However, the sector was hit during Budget week when the Chancellor announced that pensioners will be able to access their pension pots without taking out an annuity. While that was not the best news for L&G, the group had some time ago started to shift?its energies towards the massive corporate bulk-purchase annuity (BPA) market, which is unaffected by the Budget.
Analysts see L&G as well placed in the BPA market, and are forecasting high single-digit earnings growth for each of the next two years. The dividend is expected to increase at a higher rate still, with the Board targeting cash cover of 1.5 times.
At a recent share price of 208p, L&G trades on 12.5 times the current-year consensus earnings forecast, and offers a prospective 5.1% dividend income. The earnings rating is on the value side of the FTSE 100 long-term average of 14, while the dividend yield is comfortably above the 3.2% forecast for the market.
Tour operator TUI Travel, the owner of Thomson and other holiday brands, was well-managed through the post-credit-crunch recession to the extent that it was even able to continue increasing its dividend.
TUI’s latest financial year (ending September 2013) saw EPS rise 19%, and a 15% increase in the dividend. In an update last month, the group said it was trading in line with expectations for the current year. According to the City consensus, we should see a 5% rise in both EPS and the dividend — a growth rate which is expected to double the following year.
At a recent share price of 426p, TUI trades on 13.2 times current-year forecast earnings, with a prospective income of 3.4%.
Prime shopping centres and retail parks are the focus of property owner-manager Hammerson. Hammerson’s operations are diversified between the UK and France, with the UK responsible for about three-quarters of total group rental income.
Hammerson delivered a 10% rise in EPS and an 8% rise in the dividend for 2013. And the chief executive told us: “We remain on course to deliver strong growth in earnings and dividends over the medium term”. Analysts see EPS and dividend growth averaging around 8% a year for each of the next two years.
Property companies typically trade on hefty earnings ratings, but on assets Hammerson is at a fair price of around book value, with the shares at 578p. The prospective dividend yield is 3.5%.
G A Chester does not own any shares mentioned in this article.