Moneysupermarket for income and growth

Moneysupermarket, which offers online price comparisons for banking, travel, energy and insurance across several suppliers, has quite a straightforward growth story - more people are making more use of the Internet to compare the prices of more things. Improving economic conditions and the prospect of rising interest rates should also give the business a cyclical boost in coming years. What's more, the business is extremely cash generative, which supports a high and fast-growing dividend payout.

The shares are forecast to yield 4.4 per cent this year and 4.8 per cent come 2015. This kind of growth is far from unprecedented. Last year the payout was boosted by 27 per cent and the company also managed a 12.92p special dividend (special dividends were also paid in 2009 and 2011). And despite returning over £100m to shareholders, year-end net debt came in at a relatively modest £21.1m, which had fallen to £13.4m by the end of the first quarter.

The healthy balance sheet and cash flows means that, as well as returning piles of cash to shareholders, Moneysupermarket is in a strong position to invest in the business. One important area of spending is on making its websites encourage more repeat business and thereby improving how the City perceives the quality of its earnings. It is also investing in advertising, with a 20 per cent increase in offline marketing costs last quarter. The company launched new ad campaigns for both its money and travel businesses.

Investing in repeat business and the brand looks especially important at the moment given recent problems that Moneysupermarket has had with its Google rankings, which put revenues and profits under pressure. Indeed, a change to how Google ranked sites made Moneysupermarket far less prominent in search results. That's been particularly problematic given that broker Numis's estimates that about half of cash profits originate from Google search traffic. While the ranking issue now looks to be pretty much resolved, a broader concern is that Google is trying to get a bigger slice of price comparison revenues, so Moneysupermarket's investments continue to look most worthwhile.

But despite the Google problem and the negative impact of government financing schemes on the group's Money division, the diversity of the group means trading has been reasonably robust. Sales and cash profits rose 8 and 5 per cent, respectively, last quarter, building on a 26 per cent rise in adjusted cash profits last year. The gross margin also rose 370 basis points to 77.8 per cent in 2013. And MoneySavingExpert, a financial information and advice website acquired in 2012, grew adjusted cash profits four-fold last year and sales rose 30 per cent in the first three months of 2014.

The group's newer, smaller divisions have also been performing very well. Its travel business, which lets customers compare prices for hotel, flights and other services, grew sales by over a third to nearly £18m in 2013 and by 41 per cent in the first quarter. Helped by the furore over energy bills, its home services business nearly doubled revenues last year to £22m and reported 59 per cent first-quarter growth. Meanwhile, sales grew at a more pedestrian 6 per cent at its insurance division, which accounts for 57 per cent of group revenues. And while visitor numbers fell 4 per cent in the first quarter - largely due to the Google issue - revenues were flat.

But the money business, which accounts for almost a quarter of group sales, continues to be hit by the UK government's 'Funding for Lending' scheme, which has discouraged customers from changing banks. Revenues fell 9 per cent last year but were up 4 per cent in the first quarter.