LONDON -- To me, capital growth and dividend income are equally important. Together, they provide the total return from any share investment and, as you might expect, my aim is to invest in companies that can beat the total return delivered by the wider market.
To put that aim into perspective, the FTSE 100 has provided investors with a total return of around 3% per annum since January 2008.
Quality and value
If my investments are to outperform, I need to back companies that score well on several quality indicators, and buy at prices that offer decent value.
So this series aims to identify appealing FTSE 100 investment opportunities and, during recent weeks, I've looked at Tesco (LSE: TSCO ) , British American Tobacco (LSE: BATS ) ,SABMiller (LSE: SAB ) , Reckitt Benckiser (LSE: RB ) and J Sainsbury (LSE: SBRY ) . This is how they scored on my total-return-potential indicators (each score in the table is out of a maximum of 5):
| Dividend cover | 4 | 3 | 4 | 4 | 3 |
| Borrowings | 3 | 4 | 2 | 4 | 3 |
| Growth | 3 | 3 | 4 | 5 | 5 |
| Price to earnings | 3 | 3 | 2 | 2 | 3 |
| Outlook | 3 | 3 | 4 | 4 | 5 |
| Total (out of 25) | 16 | 16 | 16 | 19 | 19 |
Supermarkets
With trouble at home and abroad, Tesco recently managed to post a 14.5% reduction in underlying full-year profits. Last year, the firm disposed of its assets in Japan, and intends to pull out of America, too. Weaker trading in Europe, and a catch-up investment program for its U.K. stores, has contributed to the shortfall in profits. The company is working hard to turn itself around and, if it can get back on track, investors could yet see out-performance on total returns from here. I'm likely to buy if the share price dips.
It's a different story at Sainsbury, which has posted yet another decent set of full-year results demonstrating its ability to grow steadily in a competitive market. The firm opened 87 more of its briskly growing smaller-format convenience stores during the year, and is seeing encouraging progress with its non-food and on-line offerings, too. Steady growth seems evergreen at Sainsbury, and that makes me optimistic about the company's total-return potential. I think Sainsbury shares are worth picking up on weak-market days.
Tobacco
Although cigarette volumes are declining worldwide, British American Tobacco continues to win market share. Growth in Indonesia, the Middle East, South Korea, Germany, Poland, Pakistan, Chile, Canada, and Italy is tending to be offset by declines in places like Brazil, Russia, Japan, Spain, the Middle East, Uzbekistan, and Spain. With the directors talking of fragile markets, the forward dividend yield of around 4.5% doesn't tempt me, as the other half of the total-return equation, capital gains, seems vulnerable.
Brewing
SABMiller has been increasing sales, raising its dividend, and expanding steadily across the globe. That success reflects in recent share-price performance. The directors see strong potential for growth in emerging markets, although the valuation seems a little ahead of city growth forecasts for the time being. In the longer run, I still think SAB is capable of pleasing investors on total returns, even from here. I'm watching with interest.
Consumer goods
With around 56% of core net revenue coming from Europe and North America, Reckitt Benckiser has a mature-market base from which to push forward into fast-growing emerging markets. Last year, around 27% of core net revenue came from Latin America, Asia, and the Asia Pacific, and 17% from Russia, the Middle East and Africa. The firm's strong brands, with their repeat-purchase credentials, make me optimistic about total returns from here, but I'm watching for a cheaper valuation before buying the shares.
What now?
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