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3 Dividend Titans From the UK's Top Equity Income Fund

LONDON -- For more than 30 years, the "White List" has been offering an impartial guide to U.K. Equity Income funds with a track record of delivering rising dividends and long-term capital growth.

In its annual review, published in January, the White List identified JO Hambro UK Equity Income as the top fund by overall merit.

Three FTSE 100 heavyweights that feature in the fund's top 10 holdings caught my eye. What are the attractions of banking behemoth HSBC Holdings (LSE: HSBA  ) (NYSE: HSBC  ) , oil giant Royal Dutch Shell (LSE: RDSB  ) (NYSE: RDS-B  ) , and big pharma group GlaxoSmithKline (LSE: GSK  ) ?

HSBC Holdings
The FTSE 100's second-largest company, capitalized at more than 130 billion pounds, was named the world's No. 1 bank brand in Brand Finance's 2012 bank brands list. While the company is phasing out its advertising tag line "the world's local bank," its international reach remains immense.

HSBC's sheer size, the strength of its brand, and its geographical diversity make this the bank for risk-averse investors. At a recent price of 720 pence, HSBC trades at 1.3 times book value -- an indication of the market's belief in the quality of its assets compared with those of Lloyds and Royal Bank of Scotland, which both trade at a discount to book.

HSBC is also rated more highly on earnings, though the forecast 11.5 times 2013 earnings is below the FTSE 100 average. Meanwhile, the prospective dividend yield of 4.2% is almost a percentage point above the market average.

Royal Dutch Shell
The biggest company in the FTSE 100, valued at more than 140 billion pounds, Shell achieved top spot in the 2012 Fortune Global 500, an annual ranking of the world's largest companies by revenue. This global goliath operates in more than 80 countries and territories, employing about 90,000 people. Revenue last year topped 300 billion pounds.

Despite recent general investor optimism, Shell -- like other oil majors -- remains fairly unloved. The company's annual results, announced last week, underwhelmed the market.

At a recent share price of 2,290 pence, Shell is trading on just 8.5 times forecast earnings for 2013 and offers a prospective dividend yield of 5%, or 1.5 times the FTSE 100 average.

The U.K.'s 70 billion pound pharma giant ranks at No. 5 in the FTSE 100 and is almost double the size of its nearest Footsie rival, AstraZeneca.

In addition to its main pharmaceutical and vaccine business, Glaxo has a consumer health-care arm that provides around one-fifth of the group's total revenue. Consumer favorites such as energy drink Lucozade, toothpaste Sensodyne, and the Nicorette quit-smoking family of products provide Glaxo with useful business diversification to complement its international diversification.

Glaxo is less affected by expiring drug patents that are doing so much to damage AstraZeneca's revenue and earnings. And this week's results from Glaxo are expected to be a good deal better than last week's from Astra.

At a recent share price of 1,450 pence, Glaxo is trading on 12.5 times forecast earnings for 2013. That isn't as cheap as HSBC or Shell, but Glaxo does offer the highest prospective dividend yield of the three at 5.3%.

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Related Tickers

9/27/2016 12:01 PM
GSK $1636.87 Up +3.37 +0.21%
GlaxoSmithKline CAPS Rating: No stars
HSBA $574.33 Up +5.13 +0.90%
HSBC Holdings CAPS Rating: No stars
RDSB $1888.66 Down -36.34 -1.89%
Royal Dutch Shell… CAPS Rating: No stars
HSBC $37.59 Up +0.75 +2.04%
HSBC Holdings CAPS Rating: **
RDS-B $50.08 Down -0.37 -0.73%
Royal Dutch Shell… CAPS Rating: ****