Looking for stocks that offer both income and the opportunity for growth? These companies are considered to be trading below their market value by Morningstar equity analysts and are paying a yield of at least 4%.
Centrica (CNA)
Centrica has achieved steady earnings and dividend growth despite reduced retail gas and power demand and a large tax increase on North Sea gas production. The solid financial performance during tough macroeconomic times was due to its strategy of hedging roughly 50% of its retail energy sales with its own assets.
However, owing to the declining production in the aging Morecambe gas fields, Centrica has made several acquisitions of gas properties and increased its exploration to maintain this effective hedge level.
Rexam (REX)
After the sale of its plastic packaging businesses, Rexam is now fully focused on its metal beverage-can operations. Analysts were pleased to see this, because beverage-can production has clearly been Rexam's most-advantaged business. Together, the world's three largest producers of metal beverage cans constitute nearly the entire share of the European, South American, and North American beverage-can markets and 60% of global supply.
Thanks to the rational oligopolies that exist in most major markets, Rexam's beverage-can operations have largely been able to maintain steady operating margins as a result of its long-term contracts, most of which allow Rexam to pass through what are often volatile input costs, mainly aluminium and steel, to its customers.
Standard Chartered (STAN)
Standard Chartered was one of the few global banks that was not deeply damaged by the financial crisis. Its footprint in some of the world's fastest-growing markets – Asia, Africa, and the Middle East – spurred profit growth of about 14% annually between 2010 and 2012. Although slowdowns in its key markets mean near-term growth is likely to be subpar and loan losses are likely to grow, the bank's underlying advantages look to remain in place.
Analysts were especially impressed that Standard Chartered is controlling expenses well despite cost inflation in its markets and is maintaining its 55% cost/income ratio. They think the bank's diversification – no market accounts for more than 25% of profits before tax and noninterest income accounts for nearly half of revenue – will help the firm smooth over any bumps in the road, although turmoil in Asia, Africa, or the Middle East is bound to affect its profitability.
