Do these 2 low yielders offer sky-high growth prospects?

Updated: 
Diageo Baileys

These two FTSE 100 favourites yield well below the index average of 3.69% and are easy to overlook with many companies paying 5% or 6%. Do they compensate by offering serious capital growth potential instead?

Diageo another day

I still have fond memories of my spell investing in spirits giant Diageo(LSE: DGE), which doubled my money during its glory growth days under former chief executive Paul Walsh. Like Walsh, I got out just in time, as the stock has floundered under successor Ivan Menezes. The stock is up a watery 10% since he pulled up his bar stool on 1 July 2013 and he can't even take the credit for that, since most of the growth has come post-Brexit, as the weaker pound has driven up the value of foreign earnings from its global drinks range.

I sold because I felt the company was due a spell of retrenchment after its spirit-raising acquisition rush under Walsh. Menezes' reign has largely been hit by factors beyond the firm's control, such as the crackdown on gift giving in China, the emerging markets slowdown generally, and the relative strength of sterling (now reversed).

High drink prices

Investors may finally be raising a cautious glass to the new chief, with recent full-year results showing volumes up 1.3%, net sales up 2.8% and operating profit rising 3.5%. Its six global brands (Johnnie Walker, Smirnoff, Baileys, Captain Morgan, Tanqueray and Guinness) are all growing, as is the US spirits business. The scotch and beer portfolio is also perking up. Earnings per share (EPS) are forecast to rise 16% in the year to 30 June 2017, a positive development after recent reversals. However, the yield remains low at 2.67% while the valuation is high at 24.65 times earnings. That blend is too expensive for my tastes.

Dear Prudence

Asia-focused insurer Prudential(LSE: PRU) has also doubled my money and remains a fixture in my portfolio, although again, recent performance has been patchy with the stock up just 9% in the last three years. The emerging markets slowdown has had less of an impact here as the insurer has managed to grow its Asia business regardless, and it now accounts for over a third of group profits. This should continue to rise with first-half operating profits in Asia increasing 15% to £743m.

UK profits have also been rising but the US and subsidiary M&G have been hit by stock market volatility, and remain vulnerable to an economic slowdown. This is less of a problem in Asia, where the company is targeting protection policies such as health and life insurance, which generate regular premiums over the long term.

Pru romance

After five years of healthy increases, EPS are forecast to fall 10% in 2016, suggesting further share price volatility. However, a 14% forecast rise next year should brighten the outlook. Prudential looks the better of these two companies, in part due to its more amenable valuation of 11.1 times earnings. Its dividend yield is only 2.81% but with generous cover of 3.2 there's plenty of scope for progression (it was recently hiked 5%). Asia should continue to grow in stature, but the prospect of a US and UK slowdown may weigh on the share price for a while longer.

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Harvey Jones owns shares of Prudential. The Motley Fool UK has recommended Diageo. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.