Three top-quality stocks for income and growth

Professional investor Hugo Are picks three UK stocks that offer an attractive yield and the prospect of income and capital 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.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

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.

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.

Advertisement - Article continues below

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. a competitive comparison site

Beyond these core holdings, we seek a wide variety of interesting investment opportunities. As an asset-light technology business, (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. also has a unique asset in the impartial "consumer champion" website

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. 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.



Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
17 Jan 2020
Share tips

Share tips: eight stocks that should deliver robust returns

Ryan Ermey of US publication Kiplinger’s Personal Finance chooses his favourite stocks for the next decade, which should be able to grow for years.
28 Dec 2019
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
20 Dec 2019
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
13 Dec 2019

Most Popular

UK Economy

How the BBC can survive the end of the TV licence

Th TV licence that funds the BBC is looking way past its sell-by date, says Matthew Lynn. Here's how it could survive without it
16 Feb 2020
UK Economy

Britain has a new chancellor – get ready for a major spending splurge

The departure of Sajid Javid as chancellor and the appointment of Rishi Sunak marks a change in the style of our politics. John Stepek explains what's…
14 Feb 2020

Living on a houseboat: the pros and cons of a floating home

Living on a houseboat sounds romantic and peaceful. But it’s not as straightforward as it looks, says Nicole Garcia Merida
14 Feb 2020

The rare earth metal that won't be a secret for long

SPONSORED CONTENT – You can’t keep a good thing hidden forever; now is the time to consider Pensana Rare Earths and the rare earth metals NdPr.
31 Jan 2020