LONDON -- Some investors prioritize capital growth through a rising share price, while some prioritize income growth from a rising dividend. But growth-and-income shares offer investors a bit of both.
Aberdeen Asset Management (ADN), Legal & General Group (LGEN 0.28%), and Rexam (REX) are three companies from the U.K.'s elite FTSE 100 index that have grown both their earnings and dividends faster than inflation, and are forecast to continue doing so.
Aberdeen Asset Management
Aberdeen Asset Management is a global investment group, managing funds for both institutions and private investors. Revenues, profits, and the dividend have been growing strongly since the financial crisis. Indeed, the company's growth has been such that it was promoted to the elite FTSE 100 index last year.
Aberdeen delivered earnings-per-share (EPS) growth of 22% for the year ended Sept. 2012 and increased its dividend by 28%. This year, analysts are forecasting EPS to rise 10% and the dividend 18%. Despite the dividend growing at a faster rate than earnings, the payout per share would still be twice covered by EPS.
At a recent share price of 434 pence, Aberdeen is trading at 16 times current-year forecast earnings with a prospective yield of 3.1%. That's a fairly rich rating relative to the market, but there does seem to be above-average momentum in Aberdeen's business.
Legal & General
Insurance group Legal & General was hit hard by the financial crisis, making a loss of more than 2 billion pounds in 2008. Three years of restructuring -- on a model fellow insurer Aviva has now adopted -- has been successful.
Legal & General increased EPS by 12% in 2012 and the directors showed their confidence for the future by hiking the dividend by 20%. Analysts are expecting high-single-digit earnings growth for the current year and a dividend increase of 10%. The forecasts suggest the dividend will be covered a reasonable 1.7 times by earnings.
At a recent share price of 176 pence, Legal & General's price-to-earnings (P/E) ratio is less than 12 for 2013, while the dividend yield is close to 5%. The P/E and yield are at value levels relative to the Footsie average.
Rexam is an international consumer packaging company with 90% of its sales coming from the manufacture of drinks cans. The company has recovered well since the global recession, growing its earnings and dividend steadily.
For 2012, Rexam increased both its EPS and dividend by around 5%, representing growth ahead of inflation. The City is expecting 2013 to be stronger: Analysts have penciled in EPS and dividend growth of 14%. The forecast numbers have the dividend more than twice covered by earnings.
At a recent share price of 548 pence, Rexam is on a P/E of 13.5 and a dividend yield of 3.2%. Thus, the market is rating the company cheaper than Aberdeen Asset Management but more expensive than Legal & General.
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