Should I Invest in These 5 FTSE 100 Shares?

LONDON -- To me, capital growth and dividend income are equally important. Together, they provide the total return from any share investment and, as you might expect, my aim is to invest in companies that can beat the total return delivered by the wider market.

To put that aim into perspective, the FTSE 100 has provided investors with a total return of around 3% per annum since January 2008.

Quality and value
If my investments are to outperform, I need to back companies that score well on several quality indicators and buy at prices that offer decent value.

So this series aims to identify appealing FTSE 100 investment opportunities and during recent weeks I've looked at Rio Tinto(RIO 3.37%), Amec (LSE: AMEC), G4S(GFS), Meggitt (MGGT), and Hargreaves Lansdown(HL 0.03%). This is how they scored on my total-return-potential indicators (each score in the table is out of a maximum of 5):

There's a clear winner on the scoring with Amec, but each company has its investment attractions:

Big mining
After a difficult 2012 that led to a headline loss of $3 billion, Rio Tinto has hopes of a turnaround in its fortunes under its new CEO and its new CFO. The incoming directors have promised to focus on pursuing greater value for shareholders by targeting more focus, discipline and accountability throughout the organization. Despite a patchy trading record, and if commodity prices hold up, having new management with a recovery plan makes the optimistic outlook sound convincing. To demonstrate their confidence, the directors recently hiked the dividend by 15% and new investors will enjoy a forward yield predicted to be around 3.7% at current share-price levels. Rio looks interesting.

Engineering management
The directors at Amec expect low- to mid-single-digit revenue growth to continue into 2013. The firm is one of the world's leading engineering, project management and consultancy companies and 57% of its revenue depends on the natural resources sector, 23% on the power and process sector and 20% on the environment and infrastructure sector. The commodity-price environment will influence Amec's trading but, given the current stable outlook, Amec looks well placed to please investors on total-returns from here, and I'm encouraged to think about buying some of the shares.

Security
Despite losing £70 million on its Olympic contract during 2012, G4S's underlying earnings were slightly up on 2011. The firm has consistently grown its dividend, which will probably be a big contributor to investor total returns, going forward. However, I'm uneasy with the high debt carried and the companies wavering cash flow doesn't reassure. As the London-Olympics debacle demonstrates, pursuing revenue growth can lead to a loss of control, particularly when your main resource is people. I'm happy to remain out of G4S, despite its forward dividend yield around 3.4%.

Manufactured engineering solutions
Trading has been good at Meggitt. The firm's engineered solutions and manufactured components are going into worldwide sensing, control and aircraft breaking systems and other high-specification applications. The directors expect further high single-digit growth in most categories and a flatter performance from the firm's U.S. military operations, going forward. With growth still on the agenda and a continuance of on-going after-market sales, the total-return potential looks encouraging from here. I'm up for buying on the share-price dips.

Investment services
By passing the discounts it receives from fund providers to its clients, direct-to-private-investor- investment-supermarket-and-wrap-platform provider Hargreaves Lansdown aims to win business and generate customer loyalty. The strategy is working and growth seems set to continue, but a lot of that is in the share price. However, with zero debt, steady growth in cash flow and a positive outlook, Hargreaves' business credentials seem impeccable and I'll watch out for an entry point that makes sense.

Action plan
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