Westpac Banking Corp
Over the last year, shares in Westpac Banking Corp (ASX: WBC) have outperformed the ASX by 5% and, looking ahead, this performance differential could continue. That’s because Westpac has a very appealing track record when it comes to dividend and earnings growth and, with the outlook for the ASX being somewhat cloudy, investor sentiment in Westpac could pick up moving forward.
For example, Westpac has been able to increase its bottom line at an annualised rate of 14.9% over the last five years, which easily beats the growth rate of the ASX and it has paid a hefty proportion of this growth to shareholders in the form of higher dividends. In fact, dividends per share have risen by 9.4% per annum during the same time period.
So, while Westpac does trade on a price to book (P/B) ratio of 2.2, which is higher than that of the wider banking sector of 1.3, it seems to be worth the premium and could have an excellent year ahead of it.
Also seeing its share price rise at a faster rate than the ASX over the last year is CSL Limited (ASX: CSL), with the pharmaceutical company posting a gain of 22% versus 6% for the wider index. A key reason for this is the stunning rate of growth that CSL as a business has been able to deliver, with the company’s cash flow increasing at a staggering 13.5% per annum over the last 10 years.
This shows that the earnings growth that has been recorded is backed up by excellent improvements to the company’s cash flow and, looking ahead, more growth looks set to come. For example, CSL is forecast to increase its bottom line by 16.7% per annum over the next two years, which makes its current price to earnings (P/E) ratio of 26.8 seem much better value. As a result, CSL could be a top performer in 2015.
Scentre Group Ltd
Although shares in Scentre Group Ltd (ASX: SCG) have risen by 12% in the last three months, they still trade on a valuation that offers scope for continued growth in the future. For example, Scentre has a P/B ratio of just 1.09, which is below that of the ASX (1.26) and the wider real estate sector (1.19), which means that it could be subject to an upward rerating adjustment moving forward.
And, with Scentre having increased dividends per share by 5.9% in the last year, it could continue to appeal to income investors who are seeking companies that are likely to offer a rise in dividends in real terms moving forward. This could push sentiment in Scentre higher and mean that the momentum that has helped it to outperform the ASX by 21% since it listed in June last year continues and allows it to beat the ASX in 2015.
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Returns as of 27th November
Motley Fool contributor Peter Stephens does not own shares in any of the companies mentioned.
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