Do AstraZeneca plc, Marks and Spencer Group Plc or Vodafone Group plc Have The Best Income Potential?

Income seekers have been shaken by the number of FTSE 100 companies slashing their dividends or dropping them altogether over the past year, but don’t despair, there are more solid income options out there.


Pharmaceuticals giant AstraZeneca (LSE: AZN) is all too often overshadowed by rival GlaxoSmithKline and their dividend disparity is perhaps the main culprit. Glaxo has offered more generous income payouts in recent years but the gap has narrowed, with AstraZeneca now yielding 4.65% against Glaxo’s 5.47%. When it comes to capital growth, AstraZeneca has been the clear winner, returning 39% over five years, roughly double Glaxo’s 19%.

AstraZeneca isn’t exactly flying right now. Full-year revenue growth was just 1% at constant exchange rates. But these are transitional times, as it faces up to patent expiry for its lucrative Crestor treatment in the US, while chief executive Pascal Soriot crosses his fingers and hopes heavy investment in its future drugs pipeline bears fruit. R&D costs rose 21% last year as he looks to hit his $45bn revenue target for 2023, up from $26bn last year.

There are promising signs, with a 44% rise in sales of Brilinta/Brilique, 26% in diabetes treatment, including 76% growth in emerging markets. The downside is that investors face a forecast 7% drop in earnings per share (EPS) and flat growth in 2017 while they wait to see if Soriot can deliver blockbuster success. That will ultimately determine the fate of both dividend and share price growth. Fingers crossed!

Marks & Spencer Group

It has been a tough year for investors in Marks & Spencer Group (LSE: MKS), with the share price down 17%. At least that makes the valuation more tempting at 12.35 times earnings, while the yield is now 4.4%. I was impressed by outgoing chief executive Mark Bolland’s brave decision to shun the Christmas discounting frenzy, and even more impressed when I saw the boost it gave gross margins. Bolland steps down in April and his failure to turn around the clothing division will cast a shadow over his six-year tenure.

This is still a company of mismatched separates, with food sales flying while clothing continues to sag. M&S has shown the supermarkets how to do it, while just about every other clothing retailer has taught it a harsh lesson in return. Now we wait to see whether Bolland’s internally-promoted successor Steve Rowe can finally restore M&S’s fashion sense. The dividend at least looks sound.

Vodafone Group

Telecoms giant Vodafone Group (LSE: VOD) has leapt 10% in a month, helped by February’s healthy Q3 results showing a sixth consecutive quarter of growing service revenues. South Africa was the star, with service revenues up 7.2%, while the Middle East and Asia also put on a show. Europe was a mixed bag as Vodafone fought back from recent reverses, but it did add more than 311,000 broadband customers and 506,000 mobile contracts in Q3.

Group chief executive Vittorio Colao said its hefty investment in 4G and fibre is now paying off with strong growth in data usage. Much now depends on whether Europe can recover before central bank president Mario Draghi runs out of ammunition. Forecast EPS growth of 28% this year and 23% next looks hopeful. The 5.11% dividend yield is tempting and safe for now, just note that cover has fallen to a lowly 0.5.

We reckon you can find even better income stocks on the UK market today.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended AstraZeneca. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.