Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

£2,000 to invest? Here are 2 growth and income shares I think have fantastic potential

Published 10/05/2020, 11:36
Updated 10/05/2020, 11:40
£2,000 to invest? Here are 2 growth and income shares I think have fantastic potential

£2,000 to invest? Here are 2 growth and income shares I think have fantastic potential

Many of the shares income-focused investors have traditionally relied on for dividends are now cutting the payout. Shell (LON:RDSa) is a prime example. Across the FTSE 350, established companies’ management has felt the need to preserve cash.

In this environment, and with dividends still an important source of overall returns, I’m turning my attention to two shares that combine income and share price growth potential.

A FTSE 250 growth and income share Moneysupermarket (LSE: MONY) provides investors with a dividend yield of 3.7%. This was covered by earnings 1.6x, meaning the payout doesn’t seem in immediate danger of a cut. Many other companies have cut the dividends partly because of very low dividend cover, meaning that a hit to earnings severely affected their ability to pay shareholders. Not good news.

Looking more at the growth potential, I see this coming from an improvement in its money division, despite having seen revenues decline. This was due to reduced demand for consumer credit. The lockdown may well have changed that, giving people more time to address their finances.

Between 2018 and 2019, revenue and earnings per share both rose by 9%, while pre-tax profit rose by 10%. This shows the ability of the business to keep growing, albeit not at breakneck speed.

The business is well-established, which partly explains why growth is steady rather than blistering. It’s also highly profitable, which strikes me as a combination that could power future rises in the dividend and the share price.

With the shares now not far off where they started the year, I think now could be an ideal time to buy the shares. Both for the income and the share price growth potential.

A star share from the FTSE 100 Ashtead Group (LSE: LON:AHT) has been a brilliant investment for many years. It’s thought of as a highly cyclical business prone to following the overall stock market’s ups and downs. No surprise then it’s had a tough start to 2020.

Management has been stress-testing the group’s finances. It believes under all the scenarios played out, Ashtead will have positive cash flow. Given a business can’t survive without cash, this is reassuring.

Ashtead is expecting underlying pretax profit for the year ending 30 April to be about £1.05bn, up from £947m a year earlier. The business then is in reasonable shape and highly profitable.

A price/earnings to growth (PEG) ratio of 0.3 indicates the shares have a lot of potential for growth and could be undervalued. The P/E is also under 15, indicating the shares are looking cheap.

The business makes most of its money in the US, so watching what happens there will be key to determining what might happen to revenues and profits.

There’s no doubt this share price is a risk if coronavirus spikes again and the market crashes as a result. However, if the market continues to pick up, the shares provide a growing source of income alongside plenty of upward share price potential.

The post £2,000 to invest? Here are 2 growth and income shares I think have fantastic potential appeared first on The Motley Fool UK.

Andy Ross owns shares in Moneysupermarket.com. The Motley Fool UK has recommended Moneysupermarket.com. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2020

First published on The Motley Fool

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.