Here are three stocks that offer a great mix of growth and income prospects:
BT: Bright future
Last week, the Competition and Markets Authority gave BT Group (LSE: BT-A) the go-ahead for its takeover of EE. With the company looking set to complete its merger with the UK’s largest mobile operator, analysts are optimistic on the telecom giant’s future growth prospects.
EE is not only the biggest wireless network in the UK, but it also has the best assets in terms of spectrum licenses and its network infrastructure. By combining this soon-to-be-acquired asset with BT’s existing market-leading position in fixed-line and broadband, BT expects to deliver top-line growth and margin expansion.
Top-line growth is expected to come from increased adoption of bundled quad play services and growth in its customer base. Meanwhile, cost synergies are expected to reduce operating costs and capital spending by around £360m per year, after the initial three-to-four-year integration period.
BT also has a fast-growing dividend. Over the past three years, its dividend payout had a compound annual growth rate (CAGR) of 14.3%. Analysts expect BT to pay 14p per share this year, which equates to a 12.9% rise and gives it a prospective dividend yield of 2.9%.
Travis Perkins: Think long term
Slowing residential property transactions appear to be causing a slowdown in revenue growth for Travis Perkins (LSE: TPK). The company is seeing weaker-than-anticipated demand, as home owners and property investors defer renovation and home improvement works in the light of the slowing property market.
Shares are 22% off their all-time high of 2270p in July 2015, but there’s good reason to think a rebound could be due soon. The fundamentals are firmly in favour of the company’s long-term prospects. Chronic under-investment in existing UK housing stock should mean the recent slowdown in demand is only temporary. And despite slowing growth, Travis Perkins is still outperfoming its peers in the building materials and home improvement sector, and gaining market share.
The growth outlook is shared with city analysts. They expect earnings growth of 5% and 13% for 2015 and 2016, which gives it a forward P/E of 16.2 and 14.5, respectively. Furthermore, Travis Perkins has a modest dividend yield of 2.2%.
Hammerson: Solid performer
Retail-focused REIT Hammerson (LSE: HMSO) seems set to deliver robust net rental income growth over the next few years as it benefits from growing consumer spending and a strong development pipeline. Although some analysts believe commercial property prices are nearing their peak, the fundamentals of the retail sector remains strong and the discount that listed REITs trade to their net asset values is a cheaper way for investors to gain exposure to the sector.
As shares in Hammerson have fallen 18% over the past year, they now trade at a 17% discount to its net asset value of 669p per share. In addition, the REIT has a dividend yield of 3.7%, which analysts expect will rise to 3.9% this year.
Hammerson has shown it has a strong track record in translating its development portfolio into earnings and dividend growth. Over the past five years, the REIT has generated a CAGR in dividend per share of 5.7%. Looking forward, city analysts expect dividend growth will accelerate over the next two years, averaging around 7.8%, thanks to expectations around recently-acquired assets and completed developments.
