2 'under the radar' growth and income stocks that should beat the FTSE 100

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Bovis Homes

While the FTSE 100 has risen by 8% in the last year, its outlook is relatively uncertain. Geopolitical risks concerning North Korea remain significant and could cause investors to become more cautious in future. Likewise, political risks in the US are building and concerns about the debt ceiling may cause the index to experience some challenges in future.

However, against this backdrop there remain a number of stocks which could post positive returns. They could significantly outperform the FTSE 100, with these two companies being prime examples.

Turnaround potential

Reporting on Thursday was housebuilder Bovis(LSE: BVS). Its shares spiked by as much as 10% following its first-half results, with the company apparently producing the start of a recovery after a difficult period. Its profitability continues to be negatively affected by legacy customer service costs, but it is making good progress towards its target of a 4-star customer satisfaction rating. As well as this, it has a clear set of medium-term targets to return it to its status as a leading UK housebuilder.

Alongside progress made in terms of customer satisfaction, Bovis has a valuable land bank and improving balance sheet. It believes that operational issues are fixable and it has a programme of initiatives to drive return on capital employed. To this end, it believes it can generate an additional £180m+ of cash. This should help to increase its dividend payouts, with the company announcing special dividends of 134p per share to be paid over three years to 2020. This is in addition to a forecast 5% rise in dividends in 2017, as well as a planned 20% increase in 2018.

Altogether, a rising dividend means that Bovis has significant income appeal. It could yield as much as 9% in 2018 if its forecasts are met. Alongside expected earnings growth of 17% next year and a price-to-earnings growth (PEG) ratio of 0.7, it could prove to be a strong buy.

Dividend appeal

Also offering FTSE 100-beating performance is motor insurance specialist, Admiral(LSE: ADM). It continues to offer a superb dividend yield which could become more popular as inflation moves higher. The company currently yields around 6%, and this has the potential to move higher over the medium term. It is forecast to increase its bottom line in each of the next two years, which means that dividend growth could realistically keep pace with inflation.

The motor insurance industry has faced uncertainty in recent months, with changes to the discount rate applied to personal injury claims being an obvious example. However, Admiral and its peers are generally able to pass higher costs on to customers over the medium term, which makes them a relatively robust place to invest.

With a strong track record of paying generous dividends, the stock could be an excellent defensive income play. Given the uncertainty facing the FTSE 100, it could outperform the wider index.

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Peter Stephens owns shares of Admiral. 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.