LONDON -- The retail clients of Alliance Trust Savings, I like to think, are a canny bunch. It was precisely to please those clients, for instance, that Alliance Trust Savings was the first fund platform in the U.K. to offer Vanguard's market-leading range of ultra-low-cost index trackers back in 2010.
So given that the firm has begun circulating a list of the shares that its clients have been buying each month, I thought I'd take a look. And the blue chips in question, I have to say, are a fairly respectable lot -- no falling knives or "flashes in the pan" here.
What's more, it's difficult to quibble with valuations. One or two are a tad on the expensive side, but only marginally. And despite that, they're still popular -- precisely because they are blue chips, with all that tag carries by way of dependability and decent growth prospects.
|
|
Price (pence) |
Forecast P/E |
Forecast Yield |
Market Cap (billions of pounds) |
|---|---|---|---|---|
|
Vodafone |
179 | 10.8 | 7.2% | 88.2 |
|
GlaxoSmithKline |
1,435 | 11.7 | 5.4% | 71.1 |
| National Grid | 691 | 12.6 | 5.9% | 25.1 |
| Aviva | 323 | 6.2 | 8% | 25.1 |
|
Royal Dutch Shell |
2,196 | 7.9 | 5.1% | 138.3 |
| BP | 434 | 7 | 5% | 82.9 |
| Rio Tinto | 3,032 | 7.5 | 3.6% | 55.9 |
|
SSE |
1,427 | 11.8 | 6.1% | 13.6 |
| RSA Insurance | 113 | 8.2 | 8.5% | 4 |
|
British American Tobacco |
3,219 | 14.2 | 4.5% | 62.4 |
| Imperial Tobacco | 2,280 | 10.7 | 4.9% | 22.6 |
| BAE Systems | 322 | 7.8 | 6.2% | 10.5 |
| Anglo-American | 1,843 | 808 | 2.8% | 25.5 |
| Diageo | 1,764 | 17.4 | 2.7% | 44.1 |
| J. Sainsbury | 354 | 11.3 | 5% | 6.7 |
Source: Alliance Trust Savings.
Five for the future
To me, five of these picks stand out as especially interesting. Well-diversified, they offer a respectable yield, a decent history of dividend growth, reasonable valuations by way of entry point, and hefty market capitalizations.
Vodafone
First up is Vodafone, the single-most popular blue chip bought by Alliance Trust Savings' clients last month. The world's second‑largest mobile telecommunications company measured by both subscribers and 2011 revenue, Vodafone has 390 million customers, employs more than 83,000 people, and operates in more than 30 countries across five continents.
According to analysts, the firm is already seeing an uptick in demand for enhanced data services and looks set to continue to churn out decent dividends for years. Trading on a forecast price-to-earnings ratio of 10.8, Vodafone offers a prospective dividend yield of 7.2%.
GlaxoSmithKline
Next comes GlaxoSmithKline, the third-most popular purchase among Alliance Trust Savings' clients last month. Glaxo employs around 97,000 people in more than 100 countries, manufacturing and selling pharmaceutical products as well as a strong range of consumer-friendly brands: Ribena, Horlicks, Lucozade, Aquafresh, Sensodyne, and the Macleans range of toothpaste, mouthwash, and toothbrushes.
In short, Glaxo is a share that falls firmly into the "consumer nondiscretionary" category, and provided the drugs pipeline continues to deliver -- as it has done for decades -- then this blue chip offers staying power coupled with a decent (and growing) dividend. Trading on a forecast P/E of 11.7, Glaxo offers a prospective dividend yield of 5.4%.
Shell
Royal Dutch Shell offers a rare level of dependability. Oil isn't going to go out of fashion anytime soon, and oil prices seem unlikely to fall in the near term. What's more, Shell hasn't cut its dividend for almost 60 years. Operating more than 30 refineries and chemical plants and 43,000 retail filling stations in 80 countries around the world, Shell is one of few companies with the operational muscle and financial firepower to feed the globe's energy demands.
Throw in a low P/E and a good yield, and Shell to me looks a safe blue-chip bet. Trading on a forecast P/E of 7.9, Shell offers a prospective dividend yield of 5.1%.
SSE
SSE is one of just five FTSE 100 companies to have delivered a real dividend increase every year since 1999. A U.K.-based energy supplier, it delivers power to around 3.7 million homes, offices, and businesses, and it's also the U.K.'s second-largest electricity generation business.
Throw in the U.K.'s largest onshore gas storage facility and a 50% share of Scotia Gas Networks, which has around 75,000 km of pipelines delivering gas to some 5.7 million homes and businesses, and you've got a sizable business. Trading on a forecast P/E of 11.8, SSE offers a prospective dividend yield of 6.1%.
British American Tobacco
Finally comes British American Tobacco, the world's second-largest quoted tobacco group by global market share, possessing 200 brands sold in around 180 markets, as well as 46 cigarette factories in 39 countries manufacturing the cigarettes chosen by one in eight of the world's 1 billion adult smokers.
Does that exposure to tobacco pose a risk to the stock in the years ahead? Of course. Smoking is a health hazard and has been known as such for years. But right now, outside my window, I can see several people who surely know all this, all puffing away -- as are hundreds of millions of others. So why not profit from their loyalty to tobacco? Trading on a forecast P/E of 14.2, British American Tobacco offers a prospective dividend yield of 4.5%.
The Buffett factor
Interestingly, there's one bargain blue chip that didn't appear in Alliance Trust saving's list of September buys. This share has an unbroken 25‑year history of solid growth and rising dividends and today trades on a P/E of 9.1 -- well below the broader FTSE 100 -- and also offers a dividend yield of almost 5%. It's also a share that I've been loading up on in recent times, having quadrupled my holding this year -- and I've not been alone. Warren Buffett has been buying as well.
Its name? You can find that out in a special free report from The Motley Fool: "The One U.K. Share Warren Buffett Loves." The report explains why Buffet likes this share and reveals the price he paid for his stake. The report is free, so why not download a copy now?
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