Three good plays for income

Each week, a professional investor tells MoneyWeek where he'd put his money now. This week:Sam Morse, portfolio manager, Fidelity European Values.

My approach to investment involves identifying companies with the best prospects for consistent dividend growth. Usually this means I invest in large, well-run businesses that operate in secular growth industries.

I look for four key characteristics: strong fundamentals (companies whose products and services are likely to experience an increase in demand over the coming years); cash generation (companies whose growth is conservative and profitable); strong balance sheets (a robust financial position is important to withstand changing economic conditions); and an attractive valuation. I will often hold the company's shares for three to five years or more. This minimises trading costs in the portfolio and also prevents me from being overly influenced by short-term changes in market sentiment.

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Nestl (Zurich: NESN) has significant market share in sectors ranging from ice cream to pet-care products. With 45% of its sales generated from emerging markets, it has an engine for long-term growth that is the envy of many other companies. Changing consumer tastes create challenges for Nestl, but over the years, the firm has proved its ability to adapt its products to remain relevant and popular. Nestl has an ambitious sales-growth target of 5% per year.

Given Nestl's commitment to research and development, as well as its attractive positions in emerging markets, consistent sales growth around this level is certainly attainable. I have confidence in the ability of management to translate this into shareholder rewards, such as dividends and buy backs. The company has a 50-year track record of rising dividends, with 20% growth over the last five years.

Essilor (Paris: EI) is the leading supplier of corrective lenses. It supplies around 45% of the world's lenses (by value), including to retailers such as Boots and Walmart Optical. The company estimates that there are 2.6 billion people on the planet who require spectacles or contact lenses, but do not currently use them. Hence Essilor's primary growth opportunity is to increase the take-up of corrective lenses. With the global population ageing, and people spending more time focused on screens atclose range, the total addressable market is growing at around 3% per year.

Essilor is also moving into sunglasses, which offer another significant opportunity. While many luxury sunglasses manufacturers focus on the fashion content of the frame, and buy cheaper lenses from China, Essilor emphasises the benefits of wearing "performance" lenses that can more effectively protect wearers' eyes from UV rays. Essilor pays out around a third of its earnings in dividends, reinvesting the rest. The company has delivered 22% dividend growth over the last five years and the prospects for further increases are good.

Fresenius Medical Care (Frankfurt: FME) specialises in medical supplies related to kidney dialysis, which is required by people who have experienced kidney failure. This malady is more common in the elderly, so global demographic trends make this an attractive niche market.

The company has spent many years building up a leading competitive position by acquiring clinics and chains of clinics. This is now a consolidated industry and the company enjoys good pricing power. It has an opportunity to improve margins by better integrating these clinics and standardising certain elements.The firm has delivered 51% dividend growth over the last five years.