Some investors prioritise capital growth through a rising share price. Others prioritise income growth from a rising dividend. But some shares — growth-and-income shares — offer investors a bit of both.
Rio Tinto (LSE: RIO) (NYSE: RIO.US), Rexam (LSE: REX) and The Sage Group (LSE: SGE) 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.
Rio Tinto
Mining giant Rio Tinto’s empire-building of the past has been ditched by new chief executive Sam Walsh in favour of careful capital allocation, tight cost controls and the delivery of greater value for shareholders.
The company reported a 10% rise in earnings per share (EPS) for 2013 when announcing its annual results earlier this month. And it hiked the dividend 15%, which the board said “reflects our confidence in the business and its attractive prospects”. City analysts see high-single-digit earnings growth this year, with a more moderate, but ahead-of-inflation, increase in the dividend.
At a recent share price of 3,438p, Rio Tinto is on a forecast price-to-earnings (P/E) ratio of less than 10 — on the extreme value side of the FTSE 100 average of 17. Meanwhile a dividend yield of 3.5% is modestly above the Footsie income average of 3.1%.
Rexam
Packaging company Rexam has been narrowing down its focus to beverage cans in recent years. The process is just about complete with the recently-announced proposed sale of its pharmaceutical devices and prescription retail packaging divisions for $805m. Much of this cash will be returned to shareholders. At the same time, the company is looking to expand its core business in high-growth areas, as demonstrated by the recent acquisition of a majority stake in United Arab Can Manufacturing for $122m.
In results for 2013, announced last week, Rexam reported a 13% rise in EPS and lifted the dividend 14%. Analysts are looking for high single-digit growth in 2014. At a recent share price of 506p, Rexam is trading on a below-market-average forward P/E of 13, and an above-market-average income of 3.7%.
Sage
Sage provides business management software and services to small and medium-sized companies around the world — accounting, payroll, customer-relationship management and so on.
The company delivered EPS growth of 12% for its financial year ended September 2013, and raised the dividend 6%. Analysts are forecasting mid single-digit growth for both EPS and dividend this year, accelerating to around 10% for 2014/15.
The market has been very much in love with Sage over the last six months, pushing the shares up to a recent high of 438p. With a current year forecast P/E of 19 and a dividend yield of less than 3%, waiting for a pullback to a more reasonable rating seems a good idea.