With so manyFTSE 100 stocks offering soaraway yields of 6% or more, investors are focused on income like never before. The three stocks in this article are all firm income favourites, but could they ice that cake by serving up some tasty capital growth as well?
Pharmaceutical giant AstraZeneca (LSE: AZN) currently offers a steady yield of 4.25% and, covered 1.5 times, it looks reasonablysolid. But what about itsgrowth prospects? For Astra to grow, it needs a bulging pipeline of smash-hit drugs. This is particularly important given that current salesgrowth is poor, with total revenue down2% in the third quarter, or even worse, -10% at actual exchange rates. Sales werehit bythe recent US market entry of a Nexium generic product, and next year AZNlosesCrestor exclusivity as well.
Year-to-datesales are growing nicelyin emerging markets (up 12%) and China (up 17%), while Astras Brilinta (heart treatment), diabetes and respiratory divisions are also performing well. Chief executive Pascal Soriot reckons Astras new generation of blockbuster treatments, which harness the immune system to fight cancer cells, could deliver annual revenues of $45 billion from 2023, up from around $26 billiontoday. He had better be right, otherwise generic competition will steadily bleed revenues and growth prospects. AstraZeneca is more of a gamble than its reputation would suggest.
Holding On Tight
The worlds local bank HSBC Holdings (LSE: HSBA) has been hit hard by far-flung troubles in Asia and China. The share price is 25% lower than it was five years ago, making this a long-term loser for growth investors. What is bad for growth is often good for dividends, and the bank currently yields a juicy 5.93%, covered 1.4 times. Trading at 11.51 times earnings, it looks a tempting buy today. But what about the growth?
You mayhave to be patient on that front. Q3 adjusted profits fell 14% to $5.5bn. Earnings per share (EPS) are forecast to fall 3% in 2016 to 49.67p. Chief executive Stuart Gulliver is tightening HSBCsfocus on Asia, but that is like marching towards the sound of gunfire given slow growth in mainland China and market volatility acrossthe region. Income investors arentcomplaining but growth seekers will be biting their nails to see ifGullivers restructuring plans pay off.
Mobile phone giant Vodafone (LSE: VOD) has been a firm income favourite for years, and briefly threatened to turn into a surprise growth stock as well. The share price resurgence has trailed away in recent months, however,and Vodafone nowphones in at 217p, against a52-week high of 258p. It is still 25% over five years, against 10% on the FTSE 100, so its growth potential shouldnt be ignored.
Vodafone has been hit by its exposure to European strugglers Spain and Italy, although the tentative QE-fuelled Eurozone recovery may help on that front. Stronger growth in Turkey and India holds outbetter prospects. Earnings per share have slumped from 7.69p in the year to March 2014 to a forecast 4.79p next March. That maysoon reverse, with forecast EPS growth of 21%. Trading at 38 times earnings, Vodafone looks expensive given its mixed prospects. I would buy it for the 5.3% income instead.
There are undoubtedly whizziergrowth prospects thanthese three.
You might prefer to take a look at this little grower, that the Motley Fool’s Head of UK Investing has singled out asthe1 ‘under-the-radar’ pharmaceutical stock with blockbuster potential.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended AstraZeneca and HSBC Holdings. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.