The traditional view is that you can have above-average growth or income, but not both. The three shares I look at in this article put the lie to that myth.
Persimmon (LSE: PSN), Halfords Group (LSE: HFD) and small cap currency trading specialist Record (LSE: REC) have all hit 52-week highs in the last week. All three companies have outperformed the FTSE 100 over the last year, but remain attractive income buys.
Persimmon
Shares in housebuilder Persimmon have risen by 64% over the last year and by 26% so far in 2015.
Despite these gains, the firm still offers an attractive trailing yield of 4.8%, which is expected to rise to 6.0% in 2016, as Persimmon continues with its plan to return surplus cash to shareholders.
In Persimmon’s latest trading update, the firm reported forward sales revenues 7% of £2.0bn for the first fifteen weeks of 2015, 7% higher than at the same point last year. Weekly sales were up 6% on this time last year, while the firm’s current average selling price of £207,900 is 4% higher than last year.
The current housing bull market looks likely to run for longer than I expected, but investors need to watch out for any signs of interest rates rising. This could dampen house prices and slow sales.
Halfords
Halfords’ share price has risen by almost 10% so far this year, putting it level with the FTSE 250, in which it trades. However, there is a crucial difference. Halford’s 3.2% yield is 30% higher than the 2.5% average for the mid-cap index.
Better still is that Halfords’ dividend is expected to rise by 7.5% to 17.7p in 2015/16, giving a prospective yield of 3.5%.
Halfords’ valuation looks very reasonable to me at the moment.
Halfords shares trade on a reasonable 2015/16 forecast P/E of 14.6. However, what really caught my attention was the firm’s price-to-free cash flow ratio, which is just 12.5. This shows that Halfords profits are being converted into genuine surplus cash, which is good news for shareholders looking for income.
Record
Record describes itself as a currency manager. The firm provides currency hedging and investment services, for investors who want to add or hedge currency exposure in within their portfolios.
This firm used to be a lot larger — Record shares fell from a high of 160p in December 2007 to a low of 10p in 2012, before starting to recover to today’s price of 36p.
The company’s recovery now seems to be gaining momentum and earlier this week, Record reported a 7% rise in assets under management and an 18% increase in pre-tax profits for its most recent financial year.
Record increasingly looks like an attractive growth and income play to me. The firm’s shares currently trade on a forecast P/E of 12.7 and a prospective yield of 4.1%, which is generously covered by earnings.
Buy into momentum?
In a bull market, invest in firms with attractive valuations and strong momentum can deliver above-average returns.
It often takes a while for the market to adjust to improved earnings expectations, and I believe all three of these companies could deliver further gains.