4 Blue Chips to Drive the FTSE Higher

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

LONDON -- The FTSE 100 is a market-cap-weighted index. This means that the price changes of large companies such as Vodafone (LSE: VOD  ) and Royal Dutch Shell (LSE: RDSB  ) have a bigger effect than smaller blue chips such as G4S or Pennon.

In the coming year, this could have a huge impact on the blue-chip index. That's because, in my opinion, four of the FTSE 100's five largest companies are very cheap right now. Apart from the depths of bear markets, I cannot recall a time when so many of the U.K.'s largest companies have all been so attractively priced at the same time.


Price (pence)

P/E (forecast)

Yield (forecast)

Market Cap (millions of pounds)

Royal Dutch Shell










BP (LSE: BP  ) (NYSE: BP  )










Data from Stockopedia.

1. Royal Dutch Shell
Shares in Shell currently trade within a few percent of their low for the year.

In the last 12 months, shares in Shell have fallen 7.5%. That's almost a mirror of the FTSE 100's performance: The FTSE has increased 7.2% in the same period. Although Shell's share price has disappointed, its yield is far higher than average. Shell is expected to yield 5% for 2012, rising to 5.1% in 2013.

On a forward price-to-earnings ratio of 8.3 times expected earnings for the year, the shares are cheaper than most FTSE 100 stocks. The expected growth in 2013 makes the shares look even more attractive. Consensus is for the company to earn $4.45 per share in 2013. At today's price, that equates to a 2013 P/E of just 7.9.

2. BP
For the last two years, investors analyzing BP have been preoccupied with two issues: the Gulf of Mexico disaster and the company's joint venture in Russia.

The 2010 Macondo disaster in the Gulf of Mexico cost 11 men their lives. It also cost BP billions of pounds. These problems were further compounded by disputes between BP and its partners in the TNK-BP joint venture in Russia. In recent years, Russia has become a key part of BP's operations.

BP is near to closing the chapter on these massively damaging incidents. Only a few more cases remain in relation to the Gulf spill. In October, BP announced it had resolved the dispute with its Russian partners and entered an agreement with Russian state oil company Rosneft.

BP is expected to pay $0.38 in dividends for 2012 -- that's a 35.2% increase on the 2011 payout. The dividend is forecast to rise another 10.9% in 2013. If BP can restore dividends to the level they were at before the Macondo disaster, investors buying now would get an 8.3% yield.

HSBC hit the news this week on receipt of a $1.9 billion fine for money-laundering offenses. That was more than the market had expected. Yet it didn't stop the shares hitting a new high. Shares in HSBC are currently trading at their highest level since May 2011. However, it is possible that the shares are still cheap.

At the current level, HSBC trades on a forward P/E of 11.3. That's a considerable discount to the market average. Furthermore, significant earnings growth is expected in 2013. Analysts expect that next year's EPS will be 12.4% ahead of what the bank will make in 2012.

HSBC also pays a chunky dividend. At today's price, the shares are expected to yield 4.3% this year, rising to 4.7% for 2013.

4. Vodafone
Vodafone shares currently trade within a few pennies of their low for the year. The recent interim results for the company revealed large eurozone writedowns. While the shareholder dividend was increased, it was announced that there would be no special dividend payment this year. Instead, Vodafone announced a planned 1.5 billion pound share buyback.

This annoyed some investors on our discussion boards. Shareholders were unhappy that Vodafone was using cash to buy back shares, rather than increase its dividend.

I'm more sanguine. First, Vodafone already pays a large dividend that has been increasing. Second, buying back shares means that Vodafone can increase its per-share dividend in future without having to increase the cost of the dividend (as fewer shares will be in issue). I'm happy to take an increased dividend and let Vodafone mop up any loose stock, especially as this has the effect of increasing my holding in the company. There is also the possibility that the share buyback will lead to a sharp, short-term rise in Vodafone's share price.

If you are interested in building a portfolio of high-income dividend stocks, then take a look at what Neil Woodford has been buying. Woodford is one of the U.K.'s super-investors, and the free Motley Fool report "8 Shares Held By Britain's Super Investor" reveals the modus operandi of the top stock-picker. Click here to start reading today.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2150765, ~/Articles/ArticleHandler.aspx, 5/25/2016 11:33:47 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 17,863.42 157.37 0.89%
S&P 500 2,089.87 13.81 0.67%
NASD 4,889.62 28.56 0.59%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

5/25/2016 11:17 AM
BP $365.65 Up +7.85 +2.19%
BP CAPS Rating: No stars
HSBA $447.65 Up +13.40 +3.09%
HSBC Holdings CAPS Rating: No stars
RDSB $1695.50 Up +34.00 +2.05%
Royal Dutch Shell… CAPS Rating: No stars
VOD $228.61 Up +1.91 +0.84%
Vodafone CAPS Rating: No stars
BP $32.77 Up +0.93 +2.92%
BP p.l.c. (ADR) CAPS Rating: ****