LONDON -- I examined the investment fundamentals of the FTSE 100 (INDEX: ^FTSE ) to find five companies that stand out from the rest in a particular investment metric. This quick search hopefully highlights some companies worthy of further research, though it would not be wise to base an investment decision simply on one statistic.
Every dividend helps
Of all the companies in the FTSE 100, Tesco (OTC: TSCDY) (LSE: TSCO.L ) has the longest history of increasing its dividend to shareholders year in, year out. Tesco's dividend has increased from 0.4 pence in 1984 to 14.76 pence in 2012 -- an average per-year increase of 13.8%. Despite its recent troubles, Tesco is clearly one of the most successful companies in the U.K. today. While investors speculate over whether Tesco shares will move higher or lower from here, I've yet to hear any analyst seriously question Tesco's ability to continue increasing its dividend in the near term.
Tesco's dividend is expected to increase 2% for 2013 and again by 8% the year after. Profit forecasts follow a similar trajectory, meaning Tesco currently trades in the market on a forward price-to-earnings ratio of 9.2 and dividend of 4.8%. At today's price, Tesco looks like a fantastic quadruple-play of success, growth, yield, and value all in one share.
The lowest P/E
Of all the investment ratios, P/E is the one investors consider indispensable.
When averaging out earnings forecasts for the next two years, Vedanta Resources (LSE: VED.L ) has the lowest P/E in the FTSE 100 at 5.6 times profits.
Normally the market reserves such miserly ratings for companies whose earnings are expected to decline significantly. Consensus forecasts, however, are for profits at the Indian mining firm to fall for 2012 before recovering significantly in 2013 to a record level. The shares also pay a 3.1% dividend. Vedanta appears to be an inexpensive blue chip with growth ahead of it and a respectable dividend while you wait.
Expensive as chips
Computer chip designer ARM Holdings (Nasdaq: ARMH ) currently trades at 37 times consensus estimates of 2012 profits, making it the most highly rated share in the FTSE 100.
With high P/E stocks there is always the risk of "valuation compression" -- the possibility that the company fails to deliver on expectations, and its rating adjusts to something far more modest, crashing the share price in the process.
In the last five years, ARM has never traded on a P/E below 20, but that hasn't stopped the shares reaching almost five times the price they were in 2007.
ARM is currently making hay from demand for its processors in smartphones, leading to expectations of a 60% increase in profits this year, followed by a 20% increase the year after. Total dividends to shareholders in 2011 added up to 3.5 pence and are expected to increase to 4 pence in 2012 and 4.8 pence in 2013 -- a tidy yield for those who have held the shares prior to the smartphone boom.
The 14% payout
With a forecast payout that puts the shares on a yield greater than 14.3%, hedge fund firm Man Group is the FTSE's biggest dividend payer.
Unfortunately for shareholders, Man's flagship fund, AHL, has struggled to demonstrate the kind of returns it produced before the credit crunch, and as profits fell, the company halved its dividend in 2010. In fact, profits no longer cover Man's massive dividend, and fear that Man's profits may not recover has driven its share price to its lowest point in more than 10 years.
Yet there are grounds for optimism. Man Group remains a well-regarded operation and is frequently cited as a takeover target. A return to more normal behavior in the financial markets would likely be very good for Man's profitability, and if investors could be convinced the dividend is sustainable around the current level, then Man shares would trade far higher.
The dividend hiker
There are a collection of shares in the top tier that have recently increased their dividend payout substantially. However, some of these -- such as BP (NYSE: BP ) and Carnival -- are simply restoring their dividend from a previous cut or are forecast to cut in the future, as is Fresnillo.
By my calculations, the FTSE 100 company that has increased its dividend the most this year -- without cutting the year before or being expected to cut in the future -- is gold producer Randgold Resources.
Despite its meteoric rise in the last five years -- Randgold Resources shares are up fivefold since 2007 -- the company trades at just 13.7 times forecast profits for 2012 and 12 times the 2013 consensus figure. The dividend was doubled in 2011 and is expected to continue rising, reaching $0.80 (like many miners, Randgold reports in U.S. dollars) in 2013 -- that's four times the 2010 payout. Although the rating means Randgold shares could not be considered cheap by value investors, the successful track record and commitment to increasing returns to shareholders makes the company an almost unique blue-chip play on the precious-metals boom.
He avoided techs in the dot-com bubble and banks in the credit boom. But just where is dividend expert Neil Woodford investing today? All is revealed in this free Motley Fool report: "8 Shares Held By Britain's Super Investor."
Further investment opportunities:
- Planning For The Great Share Price Apocalypse
- Tesco, Tarzan And Me
- 3 Fire-And-Forget Ways To Build Your Wealth