S&P/ASX 200 Index (ASX: XJO) shares can be a good source of income and growth.

Businesses can reach a point where they don’t need to invest as much for growth if they’re already in a strong market position, so they’re able to send some of the profit to shareholders in the form of dividends.

I think dividends are a good sign that an ASX 200 share is profitable and that management have a focus on rewarding shareholders.

Here are three of the ASX 200 shares I’d consider for growth and income:

Share 1: Bapcor Ltd (ASX: BAP)

Bapcor is Australia’s leading automotive parts business. It runs a variety of parts brands such as Burson which supplies auto parts to mechanics – this is the main profit generator for Bapcor. It also runs Autobarn, ABS, Midas and a number of specialist wholesalers including ones focused on truck parts. I like how it’s diversified across several areas of the auto industry. 

The COVID-19 shutdown was obviously bad news for the ASX 200 auto parts business. Heavily reduced driving on the roads meant less cars needing car parts. But restrictions have been lifting and the Bapcor share price has gone up 80% since 23 March 2020.

Before the pandemic hit, Bapcor had a solid history of dividend growth. I think that good dividends could return as early as FY21. Bapcor currently has a trailing grossed-up dividend yield of 4.4%. I think the FY21 dividend could end up being a similar yield.

Over the longer-term I’m excited by Bapcor’s plan to expand to more than 80 locations in Asia, with a turnover target of $100 million.

Share 2: TPG Telecom Ltd (ASX: TPM)

TPG has grown into a large ASX 200 telco player. It offers a cheaper service for customers and runs with lower costs than rivals like Telstra Corporation Ltd (ASX: TLS).

In the shorter-term the big plan is to merge with Vodafone Australia. Creating one larger company would result in very useful synergies. In-particular, only one 5G network would need to be built.

TPG plans to pay a special dividend of between $0.49 to $0.52 per share. The combination of TPG and Vodafone Australia should also lead to higher ordinary dividends.

The new 5G services should unlock more revenue opportunities for TPG. It’s hard to imagine what the next phase of technology will bring. Augmented reality (AR) and virtual reality (AR) will probably be two areas of data demand growth for the ASX 200 telco share.

Share 3: InvoCare Limited (ASX: IVC)

InvoCare is an interesting (and morbid) ASX 200 share. It’s the largest funeral operator in Australia and New Zealand.

The InvoCare share price is still down 23% from where it was on 27 February 2020. COVID-19 restrictions meant the number of people who could attend a funeral was limited. However, those restrictions are now lifting and funerals are returning to normal operation.

Thankfully, Australia and New Zealand have hardly seen any deaths caused by COVID-19 infections. Indeed, there may be even less deaths this year because of the social distancing and increased personal hygiene. This will lower the funeral operator’s FY20 profit.

However, the ASX 200 share is still predicted to be a beneficiary from the long-term tailwinds of the ageing demographics. Death volumes are expected to grow by 1.4% per annum between 2016 to 2025 and then increase by 2.2% per annum from 2025 to 2050. This is a good slow-and-steady tailwind to have. 

InvoCare currently has a trailing grossed-up dividend yield of 5.1%. I believe the FY21 dividend could bounce back to a similar (or higher) level.

Foolish takeaway

I believe that each of these ASX 200 shares has decent growth prospects over the next few years. InvoCare and Bapcor have a history of reliable dividends whilst the combined TPG-Vodafone Australia business will pay higher ordinary dividends.

At the current prices I’d probably go for Bapcor. The fall in new car sales could see more people buying auto parts to make their car live longer instead of buying a different car. Older cars are more likely to need a part replaced.

More reading

• Why I think Telstra shares are a strong buy
• Why I think this ASX 200 rally is fake
• UBS picks the best ASX retail stocks for the post COVID-19 world
• 3 fantastic ASX 200 shares to buy right now
• Leading brokers name 3 ASX 200 shares to sell today

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Bapcor. The Motley Fool Australia has recommended InvoCare Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post 3 ASX 200 shares to buy for income and growth appeared first on Motley Fool Australia.

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The Telstra Corporation Ltd (ASX: TLS) share price has been a disappointing performer in 2020.

Since the start of the year the telco giant’s shares have fallen almost 11%.

Is this a buying opportunity for investors?

I believe the weakness in the Telstra share price is a buying opportunity for investors for a number of reasons.

Firstly, I think the company’s shares are trading at an attractive level in comparison to their peers.

At present they are changing hands at 19x estimated full year earnings. This compares favourably to rival TPG Telecom Ltd (ASX: TPM), which is trading at approximately 29x estimated full year earnings.

Another reason I think Telstra’s shares are in the buy zone is its dividend yield.

As I have mentioned here previously, I’m confident that Telstra’s free cash flow will be sufficient to maintain its 16 cents per share dividend for the foreseeable future. Based on its current share price, this equates to a fully franked 5% dividend yield.

I think this is particularly attractive given the low interest rate environment we are living in. Especially when you consider that the cash rate looks likely to remain at a record low of 0.25% until at least 2022.

Improving outlook.

Another key reason I am bullish on Telstra is its improving outlook.

Thanks to the NBN rollout nearing completion, sizeable cost cutting, and the simplification of its business, I believe a return to growth is on the horizon. In fact, Telstra would have returned to growth in the first half of FY 2020 if were not for the NBN headwind.

For the first half, Telstra reported a 6.6% decline in underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) to $3.9 billion. However, underlying EBITDA excluding the in-year NBN headwind grew by approximately $90 million. This was the first time its EBITDA has grown since FY 2016.

So, with the NBN rollout now nearing completion, it won’t be long until this headwind is gone forever and management can focus on growing the business again.

All in all, I think this makes Telstra’s shares a great option for patient long-term focused investors right now.

More reading

• 3 ASX 200 shares to buy for income and growth
• Got $3,000? These 5 beaten-down ASX shares are begging to be bought
• 2 ASX blue chip shares I think every portfolio should hold
• These 5 ASX shares were last week’s best performers
• ASX 200 Weekly Wrap: ASX bears take control as market volatility returns

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Why I think Telstra shares are a strong buy appeared first on Motley Fool Australia.

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