An investors’ total return is made up of capital gains and income. Most investors, of course, tend to focus on one or the other. However, there are companies out there that offer a potent mix of both income and the potential for capital gains. Here are four that do so and, as such, could be worth investing in.
GlaxoSmithKline’s (LSE: GSK) (NYSE: GSK.US) update this week showed that the company continues to struggle from the effects of generic competition, while its share price has been subdued at least partly because of bribery allegations in China. However, GlaxoSmithKline has vast potential, with the company having an enviable pipeline of drugs that should propel earnings numbers upwards over the long run. Having sold off consumer brands such as Lucozade and Ribena, the company is now free to focus on drug development and, with shares trading on a price to earnings (P/E) ratio of just 13.1, they offer good value at current levels. Meanwhile, a yield of 5.5% is highly attractive and is well above the FTSE 100’s yield of 3.4%.
HSBC (LSE: HSBA) continues to offer investors top-notch income and growth potential. Indeed, the bank is forecast to grow its bottom line by 9% in each of the next two years, while its yield of 4.9% is not only highly attractive, it is also set to increase at a brisk pace. That’s because dividend per share growth is expected to be as much as 7.5% next year, meaning shares in HSBC could be yielding 5.3% next year (assuming the share price does not change from its present level). Furthermore, HSBC is well positioned to benefit from a pickup in the macroeconomic outlook for emerging markets and, as a result, could deliver improved growth prospects going forward.
Despite experiencing a number of highly challenging years, BHP Billiton (LSE: BLT) has weathered the storm better than many of its mining peers. That’s due to its vast diversification, as well as a sound strategy of mothballing large projects until they become more economically attractive. With the outlook for China continuing to improve, BHP Billiton is well placed to benefit from buoyant demand, while a yield of 3.6% is highly impressive for a mining stock with strong long term growth potential.
Shares in easyJet (LSE: EZJ) have been hit by the recent spike in the oil price, as well as disappointment among many investors regarding its profit forecasts. However, easyJet continues to offer growth potential that is superior to that of the wider market, with earnings per share (EPS) expected to increase by 12% in each of the next two years. Combined with a P/E of just 11.7, this makes easyJet’s price to earnings growth (PEG) ratio less than 1, which is highly attractive. In addition, a yield of 2.9% looks set to grow at a brisk pace, as dividends per share are expected to be 12.5% higher next year than this year.
Peter Stephens owns shares of BHP Billiton, GlaxoSmithKline and HSBC Holdings. The Motley Fool recommends GlaxoSmithKline.