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), BT Group (LSE: BT-A) (NYSE: BT.US) and Persimmon (LSE: PSN) 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.
Global banking giant HSBC posted decent results for 2013: earnings per share (EPS) increased 14% and the Board upped the dividend 9%.
HSBC revealed a weaker performance for this year’s first quarter in results announced last month, but analysts haven’t been too phased. The City experts still see EPS rising by high single digits for each of the next two years, with dividend growth tracking just a little behind.
At a recent share price of 629p, HSBC trades on 11.6 times current-year forecast earnings, which is comfortably on the value side of the FTSE 100’s long-term average of 14. The prospective dividend income of 5% also compares favourably with the market average, which is 3.2%.
Phones, broadband and pay-TV group BT recently released its annual results for its financial year ended 31 March. The company reported a 7% rise in EPS and hiked the dividend 15%.
The results beat market expectations, and management upped its previous guidance for free cash flow — the lifeblood of dividends — for 2014/15. The Board also extended its current dividend policy of 10-15% annual growth out to 2015/16. City analysts are expecting growth to be at the top end of the range, and the dividend to be covered more than twice by earnings.
At a recent share price of 397p, BT trades at around the FTSE 100 average on 13.7 times current-year forecast earnings, with a 3.2% income. There is, though, that expectation of above-average growth to come.
Persimmon was the last of the big housebuilders to drop out of the FTSE 100 when the credit crunch hit, and the first to recover strongly enough to re-enter the elite index (this time last year).
City analysts are expecting annual EPS growth to moderate from the 50% or so seen over the last three years to around 35% this year, putting the company on a P/E of 12 at a recent share price of 1,338p.
Persimmon has an unusual dividend policy. It’s intention is to pay shareholders 620p a share between 2013 and 2021, with (wherever possible) shareholders able to choose to receive the cash as a return of capital or as dividend income.
With 75p having been paid last year, there’s 545p to come, equivalent to over 40% of the current share price. 70p of the 545p will be paid this 4 July to anyone who holds shares before the ex-entitlement date of 5 June, giving a meaty yield of 5.2%.
Finally, while house prices have been rising fast, Persimmon's value has been growing even faster. And it's not just housebuilders that have the potential to outpace the property market.
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G A Chester does not own any shares mentioned in this article.