3 UK Stocks for Growth and Income

04/19/2013 7:00 am EST

Focus: GLOBAL

Outpace inflation with these shares that combine a little of the best of both worlds, writes GA Chester of The Motley Fool UK.

Some investors prioritize capital growth through a rising share price; some prioritize income growth from a rising dividend. But some shares—growth-and-income shares—offer investors a bit of both.

Unilever (UL), J Sainsbury (London: SBRY), and Standard Chartered (London: STAN) are three companies from the UK's elite FTSE-100 index that have grown both earnings and dividends faster than inflation, and are forecast to continue doing so.

Unilever
The global consumer goods giant owns powerful brands in food, drinks, cleaning, and personal care.

The 2009 appointment of an outside chief executive for the first time in the company's history seems to be paying off. Paul Polman—a Procter & Gamble (PG) and Nestle (NSRGY) veteran—has impressed in driving Unilever's sales and earnings upwards at a good clip over the last three years.

Unilever delivered earnings-per-share (EPS) growth of 10% for 2012, and increased its dividend by an ahead-of-inflation 4.4%. Analysts are expecting a similar growth performance for 2013, and the dividend to be covered 1.7 times by earnings.

At a recent share price of 2,792p, Unilever is trading at 19.5 times forecast earnings, with a prospective yield of 3.2%. That's a pretty rich rating relative to the market, but there does seem to be above-average momentum in Unilever's business, notably from emerging markets where the company has a stronger presence than its rivals.

J Sainsbury
Sainsbury is another company with good momentum in its business. The supermarket has prospered compared with its faltering FTSE-100 rivals Tesco (TESO) and William Morrison (London: MRW) over the last year or so.

In a competitive environment, Sainsbury delivered EPS growth of 6% for the year ended March 2012. Analysts are expecting the same when the company announces its results for the year to March 2013—and the same again the following year. The dividend is expected to grow a little slower—at around 4% a year—with cover edging up from 1.7 to 1.8 times.

At a recent share price of 385p, Sainsbury is trading at 12.3 times forward earnings with a prospective income of 4.7%—both at value levels relative to the Footsie average.

Standard Chartered
Standard Chartered's geographical positioning is unlike any of its UK banking rivals: the company earns 90% of its profits from the Asia-Pacific, Middle East, and Africa regions. This exposure to higher growth economies has enabled the bank to deliver ten successive years of record profits.

Standard Chartered provided its shareholders with double-digit EPS and dividend growth for 2012, and analysts are expecting more of the same for 2013. The forward numbers suggest the dividend will be covered a healthy 2.6 times by earnings.

At a recent share price of 1,630p, Standard Chartered is trading at just over ten times forecast 2013 earnings, and offers a prospective yield of 3.6%. As with Sainsbury, Standard Chartered's earnings rating and yield are both at value levels. For the supermarket, the value is tilted more toward yield; for the bank, it is more toward earnings.

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