£2,000 to invest? Here are 2 growth and income shares I think have fantastic potential

With dividends being cut by many traditional higher-yielding companies, it may be worth buying these income and growth shares.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Many of the shares income-focused investors have traditionally relied on for dividends are now cutting the payout. Shell is a prime example. Across the FTSE 350, established companies’ management has felt the need to preserve cash.

In this environment, and with dividends still an important source of overall returns, I’m turning my attention to two shares that combine income and share price growth potential.

A FTSE 250 growth and income share

Moneysupermarket (LSE: MONY) provides investors with a dividend yield of 3.7%. This was covered by earnings 1.6x, meaning the payout doesn’t seem in immediate danger of a cut. Many other companies have cut the dividends partly because of very low dividend cover, meaning that a hit to earnings severely affected their ability to pay shareholders. Not good news.

Looking more at the growth potential, I see this coming from an improvement in its money division, despite having seen revenues decline. This was due to reduced demand for consumer credit. The lockdown may well have changed that, giving people more time to address their finances. 

Between 2018 and 2019, revenue and earnings per share both rose by 9%, while pre-tax profit rose by 10%. This shows the ability of the business to keep growing, albeit not at breakneck speed.

The business is well-established, which partly explains why growth is steady rather than blistering. It’s also highly profitable, which strikes me as a combination that could power future rises in the dividend and the share price.

With the shares now not far off where they started the year, I think now could be an ideal time to buy the shares. Both for the income and the share price growth potential.

A star share from the FTSE 100

Ashtead Group (LSE: AHT) has been a brilliant investment for many years. It’s thought of as a highly cyclical business prone to following the overall stock market’s ups and downs. No surprise then it’s had a tough start to 2020. 

Management has been stress-testing the group’s finances. It believes under all the scenarios played out, Ashtead will have positive cash flow. Given a business can’t survive without cash, this is reassuring.

Ashtead is expecting underlying pretax profit for the year ending 30 April to be about £1.05bn, up from £947m a year earlier. The business then is in reasonable shape and highly profitable. 

A price/earnings to growth (PEG) ratio of 0.3 indicates the shares have a lot of potential for growth and could be undervalued. The P/E is also under 15, indicating the shares are looking cheap.

The business makes most of its money in the US, so watching what happens there will be key to determining what might happen to revenues and profits.

There’s no doubt this share price is a risk if coronavirus spikes again and the market crashes as a result. However, if the market continues to pick up, the shares provide a growing source of income alongside plenty of upward share price potential.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Andy Ross owns shares in Moneysupermarket.com. The Motley Fool UK has recommended Moneysupermarket.com. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »