Who Wants Income and Growth?

LONDON -- In an ideal world, all companies would be growing their profits and dividends fast.

However, fast-growing companies usually offer only small yields. Sometimes this is because management wants to keep the money in the business while the company establishes itself. Other times, growth leads to a high market rating, which leaves the dividend yield looking puny.

Yet there are companies in the FTSE 100 that combine both growth and income characteristics. I trawled the market to find companies that have grown their dividends and earnings at an average rate of more than 5% a year over the last five years.

I filtered again, removing any companies with a yield of less than 4%. These are the five largest companies to make the cut:

Source: Stockopedia.

1. Imperial Tobacco
Tobacco consumers are famously loyal (i.e., addicted) and have supported recent progress at the FTSE's second-largest cigarette group. In fact, over the past five years, Imperial Tobacco's earnings have grown, on average, 11.4% a year. The dividend has increased by an average of 12.1% a year in the same period.

Imperial is also one of the few large U.K. companies that are run by a female chief executive. Alison Cooper has been boss of the tobacco giant since 2010.

Imperial's brands include Gauloises, West, John Player Special, and Golden Virginia. In its last trading statement, the company reported a 4% decline in unit volumes. Sales were hit by weakness in Eastern Europe and trade sanctions against Syria.

Analysts expect earnings and dividends to rise by almost 10% for the next two years. The estimates put the shares on a 2013 yield of 5% and a P/E of just 10.3.

2. Centrica
Centrica owns British Gas, the domestic fuel supplier. Through its Centrica Energy division, the company also has an energy exploration and production operation.

Much has been made of the industry's recent price rises. Shareholders, however, will welcome the fact that Centrica is able to maintain or increase its margin. It is the consumer's demand for energy that has helped Centrica raise its dividend fivefold since 2000.

Centrica is forecast to deliver another two years of respectable growth. If the 2013 dividend forecast is met, that would put the shares on a possible yield of 5.2%. The interim dividend was raised 8% within the company's latest half-year results.

3. Wm. Morrison Supermarkets
Morrison shares have disappointed recently. In the last year they are down almost 11%. The share price is even down on where it stood five years ago.

Despite the lack of progress for the shares, Morrison's business has traded successfully. In the last five years, EPS has grown at an average rate of 25.6%. The dividend has increased, on average, by 21% per annum.

Growth is expected to be more subdued in coming years. Earnings are expected to increase by little more than 5% this year and next. Fortunately, dividend growth is expected to outpace profits.

I'm concerned the sector is being polarized away from middle-range chains such as Morrison. Still, given its forward P/E of less than 10, much misery seems to be in the price already.

4. Informa
Informa is an education and business information services company.

This is a more resilient business than you may have expected. Informa was profitable throughout the financial crisis and subsequent recession. Although the shareholder dividend was cut significantly in 2008, it has since recovered. Informa is now paying a dividend significantly higher than it was in 2007.

The analyst consensus is for a near-80% increase in EPS for 2012. However, the current rating suggests the market has some doubts that this improvement will be achieved.

At the interim stage, Informa reported a decline in revenue and an increase in margins. While underlying EPS rose, exceptional charges took the company into the red. If all goes to plan at Informa, the shares look inexpensive. The P/E for 2013 is 9.5, with an expected 2013 dividend yield of 4.7%.

5. ICAP
Until recently, interdealer broker ICAP was an FTSE 100 share. However, a decline in trading activity has lowered profit expectations at the company, which has hit the company's share price and resulted in ICAP's demotion from the blue-chip index.

Before the financial crisis, ICAP shares were riding high. In late 2007 and early 2008, the shares were priced at twice today's valuation. Management has recently reported depressed levels of trading: Revenues for the first half of the year was around 14% lower than in 2011. ICAP continues to seek cost reductions, with 50 million pounds of savings planned for this financial year.

If ICAP's difficulties are temporary, then the shares look attractive. Using consensus estimates for 2014, the company trades on a P/E of 8.3, with a dividend yield of 7.2%.

More large-cap ideas
If large-cap income shares are your thing, then you are in excellent company. You see, top fund manager Neil Woodford is probably the best income investor in the U.K. today. Woodford's fund has outperformed the market over the last one-, five-, and 10-year periods. The Motley Fool has prepared a special report on some of Woodford's largest holdings: "8 Shares Held By Britain's Super Investor." Download the report now -- it is free and will be delivered to your inbox immediately.

David Kuo challenged his Motley Fool analysts to pinpoint the attractive sectors of 2012 -- and they delivered! Discover the industries they selected in this new Motley Fool guide -- "Top Sectors for 2012" -- while it's still free!

Further Motley Fool investment opportunities:

• The One U.K. Share Warren Buffett Loves
• 10 Steps To Making A Million In The Market
• A Quick Way To Find Winning Shares