While most investors might see the FTSE 100 as the place to go for steady dividends from stable companies and the FTSE 250 as being home to more growth stocks. Following that approach could miss out on some of the top indexs growth prospects.
Very big companies might be similar to elephants in the galloping stakes, but steady growth over the long term can still snag you some great rewards and with lower risk than smaller firms. Thats how I see the two companies Im looking at today.
Drink up
First up is drinks giant Diageo (LSE: DGE), which at first glance you might think of as a mature dividend payer whose growth days are over. But I think youd be wrong.
While Diageos best known brands in developed countries, likeJohnnie Walker,Smirnoff,Guinness and many others, might not be growth brands here, the company is expanding its offerings and sales across the developing world. At the halfway stage at 31 December, operating profit was up 29% in the Asia Pacific region, and up 28% in Africa.
Thats led to steadily rising earnings per share. If forecasts prove accurate, EPS will have grown by 44% between 2014 and 2020, which is a pretty good growth performance over just six years.
Diageo will surely go ex-growth and turn into a high-yield dividend payer some day. But it hasnt happened yet and with billions of the worlds population set for upwards mobility and the desire for upmarket brands, I cant see it happening any time soon.
P/E valuations in the low 20s are relatively high, but I think theyre justified based on Diageos long-term potential. Id buy. And one day I must get me a bottle of Rumple Minze.
Fund management
Having someone else manage my investments is anathema to me, and when I extricated some funds from a protected benefits pension scheme recently I almost felt like I was battling demonic forces.
But while I rebel at the idea of being managed, I have no objections to managing other peoples money. I dont mean personally, but by buying shares in a fund management company likeSt Jamess Place (LSE: STJ).
Profits can be erratic as investors often overreact to both up and down spells. And with cash inflows and outflows typically showing significant variation, its perhaps not an investment for those who cant handle short-term volatility.
But looking at forecasts forSt Jamess Place, they suggest a rise in EPS between 2014 and 2020 of 69%. I think thats also seriously impressive over a six-year time span.
Falling shares
In terms of valuation, since the start of 2018,St Jamess Place shares have fallen back quite a bit, depressed by a weak fourth-quarter trading update. Aftera share price gain of only around 10% over the past five years, were now looking at a forward P/E multiple of 16 based on 2020 forecasts.
Dividends are predicted to yield around 5-6%, though lack of cover could be a worry in the short term. So are the shares good value now?My colleagueRupert Hargreaves thinks so, and for those with a decade-plus horizon, I do too.
