Three top-quality stocks for income and growth

Each week, a professional investor tells us where he'd put his money. This week: Hugo Ure of the Troy Income & Growth Trust selects his favourites.

The Troy Income & Growth Trust aims to provide shareholders with an attractive yield and the prospect of income and capital growth. We seek out high-quality equities to secure market-beating returns with below-average volatility. We prefer capital-light firms that can sustainably generate high returns on capital.

Diageo: spirits are a growth market

Consumer-staples companies have long been core holdings. We are attracted by the fact that customers keep having to buy these products, the enduring brands within these companies and the capital-light economics enjoyed by the sector.

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One of the finest companies in this context is Diageo (LSE: DGE), which has consistently delivered defensive and compounding cash flow. Diageo is the global leader in the attractive spirits market, owning valuable brands such as Johnnie Walker and Tanqueray.

The potential market for Diageo is increasing thanks to a growing population and the tendency of consumers to choose premium spirits over alternatives. The combination of growth and a reasonable dividend yield of 2.2% means we believe this is a stock that can be held in the portfolio for the long term.

Moneysupermarket.com: a competitive comparison site

Beyond these core holdings, we seek a wide variety of interesting investment opportunities. As an asset-light technology business, Moneysupermarket.com (LSE: MONY) is rare for the British market. Having few assets helps ensure a highly attractive financial profile, with low capital requirements and zero debt. Margins, returns on capital and operating leverage are all high. Moneysupermarket.com also has a unique asset in the impartial "consumer champion" website moneysavingexpert.com

However, the industry is highly competitive; the company spends approximately 35% of sales on advertising to remain a prominent brand going head-to-head with a meerkat and an opera singer! The company is addressing higher retention and customer engagement through its app. Services include notifying people of cheaper energy deals, or letting them know that their car tax, MOT or insurance is due.

Moneysupermarket.com is also pursuing lucrative new opportunities such as more accurately tailored mortgage recommendations. We are enthusiastic about the growth and market share achievable from these initiatives.

Next: a rare winner in retail

Amid ongoing negative perception of UK domestic stocks, and in particular the retail sector, Next (LSE: NXT) the clothing retailer, has demonstrated that resilience and quality can be found even in sectors that are largely out of favour.

Next is run by one of the UK's most highly regarded management teams. Its razor-sharp focus on cash generation and the delivery of long-term returns means it has successfully navigated the transition from brick-and-mortar store sales to online retail. The management team has also produced one of the most informative pieces of analysis by a UK corporation on the risks relating to Brexit. This clarity of purpose and thought gives us confidence that the recent return to growth of the company's dividend is sustainable.