Since the start of the year, the Diageo (LSE: DGE) share price has been able to beat the FTSE 100. It has gained 10%, and could generate further outperformance of the wider index. It appears to have a strong growth outlook and a sound strategy. As such, it could be worth buying alongside a company that released results on Tuesday, and which could also generate high long-term returns.

Improving prospects

The stock in question is real estate investment trust (REIT) Derwent London (LSE: DLN). It released full-year results which showed a rise in net property and other income of 12.8% to £185.9m. Its earnings per share moved 20% higher to 113.1p, while its net asset value (NAV) per share gained 1.6% to 3,776p.

The company reported strong demand for central London office space, with it being able to outperform the wider market through its development activities. Its portfolio value increased by 2.2% to £5.2bn, with it experiencing positive trading conditions despite the continued uncertainty posed by Brexit.

Looking ahead, Derwent London is forecast to post a rise in earnings of 5% in the current year. With its shares trading on a price-to-book (P/B) ratio of 0.9, it appears to offer a wide margin of safety. As such, now could be the right time to buy it after the stock has risen by 15% since the turn of the year.

Improving growth prospects

The growth potential of Diageo appears to be highly impressive. The company’s products are focused on the premium segment, which is forecast to become increasingly affordable across the global economy over the coming years. This may increase demand for the beverages company’s products at a time when it is in the process of becoming increasingly efficient as it follows a rationalisation and cost-cutting programme.

Having risen by 10% this year, the stock now has a price-to-earnings (P/E) ratio of around 24. This is clearly a high valuation, but the dependable growth of the business may help to justify it. Should there be a global economic slowdown, its performance may be hit less hard than some cyclical shares, since it operates in a relatively defensive industry where it has a strong competitive position.

Therefore, further outperformance of the FTSE 100 could be ahead for Diageo. Its economic moat appears to be wide as a result of the range of brands which it owns, while it operates across a wide variety of geographies. Therefore, from a risk/reward perspective, it could have significant appeal versus the rest of the FTSE 100 in the long run. As such, now could be the right time to buy it for the long term.

The post Have £1k to invest? I think the Diageo share price could beat the FTSE 100 appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Diageo. The Motley Fool UK has recommended Diageo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Strong results helped LondonMetric to deliver a 3% increase in its dividends to 3.7p per share for the first half, with dividend cover up slightly from 112% in the same period last year, to 114%. Assuming a similar increase in its dividend for the remainder of the year, which would be in line with the consensus analysts’ forecasts, shares in the REIT trade on a prospective yield of 4.3%.

Demand continues to grow

LondonMetric’s property portfolio has held up better than most in the sector, helped by its focus of distribution space. Despite ongoing Brexit uncertainties, occupational demand for distribution space, both large and small, remains strong, due to the shift happening between retail and online shopping. At the same time, the company’s largely de-risked development programme has also added to income growth and valuation gains.

Looking ahead, I’m very excited about LondonMetric dividend growth potential as its future earnings prospects are underpinned by the favourable sector outlook and its attractive short cycle of new developments. It has seven properties under construction right now, with a further four in the pipeline, which could potentially add more than 1.5m sq ft to its portfolio over the next two years.

Discount

Value investors looking for an opportunity to buy into a quality REIT at a discount should probably instead consider Derwent London (LSE: DLN).

The London office-focused REIT is attractively valued, with shares trading at a 24% discount to its net asset value (NAV), despite continuing to deliver robust earnings growth and having one of most attractive development pipelines in the central London office space.

Of course, investors are concerned about the impact of Brexit, but much of Derwent London’s portfolio is in the West End or the Tech Belt in central London — locations that are typically less exposed to the financial services industry. They are also invested in assets that have low capital values and modest rents, with good medium-term potential for improvement.

And so far, Derwent London’s rents and property valuations have held up well — like-for-like net rental income increased by 5.6% in the first-half of 2017, while NAV per share increased 0.5% in 2016 to 3,551p. Further gains are likely on the successful execution of two projects for delivery in 2019. What’s more, the vacancy rate also remains very low, after falling slightly from 1.9% in June to 1.4% at the end of September.

The stock has a regular dividend yield of just 2.2% this year, but City analysts expect its forward-looking yield will climb to 2.4% by 2018.

The post A 4%+ yielder I’d consider for its dividend growth potential appeared first on The Twelfth Magpie.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Strategy improvements

Reporting on Wednesday was real estate investment trust (REIT) Workspace (LSE: WKP). The company announced positive results for the full year, with net rental income rising by 6.9%. This helped to push adjusted trading profit 15.5% higher, with the company’s strategy being a key reason for its improving financial performance.

Demand across a wide range of industries in London is gradually moving towards the type of personalised and flexible terms which Workspace offers. More businesses are prioritising connectivity and highly designed space, which has been the direction in which Workspace has sought to move in recent years. The business has a pipeline of refurbishments and redevelopments which are expected to deliver over 1m sq. ft. of new and upgraded space over the next three years. This could act as a catalyst on the company’s profitability over the medium term.

In terms of the company’s profit outlook, Workspace is forecast to record a rise in its bottom line of 21% in the current financial year, followed by further growth of 9% next year. With a price-to-earnings growth (PEG) ratio of just 1.2, it seems to offer a strong investment case for the long term.

Growth potential

Also offering upbeat growth forecasts is fellow REIT Derwent London (LSE: DLN). It is expected to report a rise in its bottom line of 16% in the current year, followed by growth of 12% next year. This follows a four-year period of growth which saw its earnings rise at an annualised rate of 11.5%. Therefore, it appears as though the company has a resilient business model which could perform well in what remains an uncertain environment for UK property.

As well as strong growth credentials, Derwent London also offers a wide margin of safety. It has a PEG ratio of only 1.9 which, given its track record of growth, seems to be a fair price to pay.

Additionally, its dividend growth potential remains high. It is due to raise dividends per share by 21% over the next two years, which is expected to put its shares on a forward dividend yield of 2.4%. Since dividends are still expected to be covered 1.6 times by profit in 2018, more above-inflation growth could be on the cards. This mix of high growth, fair value and improving income potential could help Derwent London to beat the FTSE 100 over the medium term.

The post Two super growth stocks set to beat the Footsie appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

With uncertainty being high among investors and the outlook for the FTSE 100 being uncertain for the remainder of 2016 due to the EU referendum and US election, National Grid is likely to hold great appeal for nervous investors moving forward. And with its shares having a low beta of just 0.6, it’s likely to offer less volatility in future months.

Although National Grid’s price-to-earnings (P/E) ratio of 15.7 may appear to be rather high compared to the wider index, for a utility with relatively low risk it seems to be highly appealing. In fact, an upward rerating may be on the cards – especially since National Grid yields 4.5% and is likely to raise dividends at a higher rate than inflation over the medium-to-long term.

Overpriced shares?

While National Grid has beaten the FTSE 100 year-to-date, shares in real estate investment trust (REIT) Derwent London (LSE: DLN) have underperformed the wider index by 8%. A key reason for that is uncertainty surrounding the UK property market, with Derwent’s focus on London being particularly negative in this regard. That’s because after years of rises, there’s a real fear among investors that London property prices have overheated and are now due a pullback.

Furthermore, with the UK economy also having an uncertain future due in part to the potential for a Brexit, Derwent’s share price could continue to disappoint in the near term. Looking further ahead, Derwent’s P/E ratio of 43 indicates that its shares are rather overpriced – even though Derwent’s bottom line is due to rise by 8% this year and by a further 16% next year. Therefore, while it may have a bright long-term future, Derwent could struggle to beat the FTSE 100 this year.

The London issue

Meanwhile, shares in commercial and residential property investment company Daejan (LSE: DJAN) have fallen by 11% since the turn of the year. That’s due to the same reason as Derwent, with Daejan being focused on the Greater London area and having significant residential assets. While this has been a positive in recent years due to London house price growth, in future it could be a problem.

However, with Daejan trading on a price-to-book (P/B) ratio of only 0.7, it seems to offer excellent long-term value for money. Certainly, there’s scope for its net asset value to fall if house prices fall, but there seems to be a wide margin of safety on offer, which makes it a sound long-term buy. But in terms of outperforming the FTSE 100 in 2016, this seems more uncertain as investor sentiment may remain weak in the coming months.

The post Are National Grid plc, Derwent London plc and Daejan Holdings plc on track to beat the FTSE 100 in 2016? appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of National Grid. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.