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.
British American Tobacco (LSE: BATS) (NYSE: BTI.US), Legal & General (LSE: LGEN) (NASDAQOTH: LGGNY.US) and TUI Travel (LSE: TT) 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.
British American Tobacco
Global giant British American Tobacco (BAT) continues to thrive, despite a backdrop of general industry volume declines and current adverse exchange rate movements.
The company increased earnings per share (EPS) by 6% last year and upped the dividend by 7%. This year’s first-half numbers came in at 8% and 7%, respectively. In a third-quarter update last month, BAT said: “We remain on track for a year of solid earnings growth”. City analysts are forecasting EPS and dividend growth to continue in the 6-8% range next year.
At a recent share price of 3,431p, BAT is on a current-year forecast price-to-earnings (P/E) ratio of 15.7. The P/E is modestly on the value side of the FTSE 100 average of 16.8, while a dividend yield of 4.1% is comfortably above the Footsie income average of 3.1%.
Legal & General
Insurer and fund manager Legal & General (L&G) continues to make a strong recovery from the 2008/9 financial crisis.
The company increased EPS by 12% last year and cranked the dividend up by 20%. This year’s half-year numbers came in at 13% and 22%, respectively. In a Q3 update earlier this week, L&G reported another strong quarter, and said: “We see growing momentum in the business”. Analysts are forecasting further double-digit EPS and dividend growth next year.
At a recent share price of 208p, L&G is on a current-year forecast P/E of 13.4, with a prospective dividend income of 4.4%.
TUI Travel
Tour operator TUI Travel is another company making a strong recovery from the financial crisis and tough economic conditions that followed.
The owner of Thomson and a multitude of other holiday brands increased EPS by 9% last year and tentatively upped the dividend by 3.5%. The directors’ confidence has since increased, and the board lifted this year’s interim dividend by 10%. TUI has a September year end, and analysts are forecasting double-digit EPS and dividend growth when the company announces its results during December, followed by high single-digit growth next year.
At a recent share price of 382p, TUI is on a current-year forecast P/E of 13.1, with a prospective dividend income of 3.4%.