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Do these stocks offer the perfect mix of capital and dividend growth?

Capital and dividend growth is a winning combination that can really propel your investment portfolio higher. Here’s a look at two FTSE 100 companies that I believe have the potential to provide both capital and dividend growth going forward.


Costa Coffee and Premier Inn owner Whitbread (LSE: WTB) has seen its share price suffer heavily over the last 18 months. Concerns that the company is now ‘ex-growth’ have been compounded by Brexit uncertainty and, as a result, Whitbread shares have slumped to 3500p after almost touching 5500p in April last year.

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At 3500p, Whitbread trades on a forward looking P/E ratio of a very reasonable 14.3 times FY2017 estimated earnings. As such, I believe the stock offers considerable potential for both capital and dividend growth from here.  

Whitbread has grown its revenues from £1600m in FY2011 to £2922m in FY2016, a compounded annual growth rate (CAGR) of 12.8%, and earnings per share have climbed from 131p to 227p in this  time, a CAGR of 11.6%. With the company having ambitious growth plans to open 3700 new Premier Inn rooms in the UK and 230-250 new coffee shops worldwide this year, I believe there’s further growth to come from the hospitality giant.

The company paid 90.35p in dividends last financial year, equating to a yield of 2.58% at the current share price and the dividend has grown at an impressive rate of 12.6% per year over the last five years. Furthermore, Whitbread sports a healthy dividend coverage ratio of 2.38, indicating that the dividend is unlikely to be cut.

Recent results for the six months to 1 September 2016 were far from terrible, with total sales growth of 8.1%, basic earnings per share climbing 2.2% and an interim dividend hike of 4.9%. With the share price having fallen as far as it has, I believe that Whitbread now offers an attractive risk/reward ratio.


Similarly, I believe media giant WPP (LSE: WPP) is another stock that offers excellent potential for both capital and dividend growth over the long term.

WPP operates a very active ‘bolt-on’ acquisition strategy and this enables the company to consistently boost revenues and earnings. Indeed, revenues have climbed from £6186m in FY2007 to £12235m in FY2015, a CAGR of 8.9%, and with the company recently reporting third quarter constant currency revenue growth of 7.6%, it appears that FY2016 will be another strong year. Furthermore, WPP has significant exposure to both digital advertising and fast growing markets such as China and India, and this should help to propel revenues higher in the future.

The company has grown its dividend at an impressive rate of an annualised 20% per year over the last five years and with analysts forecasting a payout of 55p for this year, the stock now trades with a healthy looking prospective yield of 3.2%.

Earnings of 110p are forecast for FY2016, meaning the company trades on a forward looking P/E ratio of 15.6 and at that price multiple, I believe investors buying now for the long term will be well rewarded.

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