LONDON -- Market statisticians have a measure for the way a share moves with respect to the wider market: the beta. This is a measure of the volatility of returns on the share compared with the rest of the market in the same period.
High-beta shares have previously exaggerated the market's movements. Low-beta shares are popular if you do not want your portfolio to be buffetted by extremes of market sentiment.
Here are the 10 lowest beta shares in the FTSE 100 today.
|
Company |
Price (pence) |
Beta |
P/E (forecast) |
Yield (forecast, %) |
Market cap (million pounds) |
|---|---|---|---|---|---|
|
Severn Trent |
1,614 |
0.18 |
17.5 |
4.7 |
3,847 |
|
Randgold Resources |
5,450 |
0.19 |
14 |
0.7 |
5,020 |
|
United Utilities |
733 |
0.32 |
18.2 |
4.7 |
4,998 |
|
National Grid |
707 |
0.35 |
13.1 |
5.8 |
25,721 |
|
AstraZeneca |
2,910 |
0.36 |
8 |
6.4 |
36,281 |
|
Centrica |
349 |
0.38 |
12.9 |
4.7 |
18,133 |
|
Reckitt Benckiser |
4,471 |
0.38 |
17.3 |
3 |
32,157 |
|
WM Morrison Supermarkets |
262 |
0.38 |
9.9 |
4.5 |
6,114 |
|
SSE |
1,425 |
0.39 |
12.5 |
4.9 |
13,657 |
|
Imperial Tobacco |
2,362 |
0.44 |
11.1 |
4.9 |
23,336 |
Five of these stood out in particular.
AstraZeneca
AstraZeneca (AZN 2.78%) is one of the FTSE 100's three big pharma plays.
With its most recent results, the company reported a revenue decline of 15%. Earnings per share (EPS) was 9% lower for the year. The dividend was held.
The non-discretionary nature of AstraZeneca's sales means that the shares do not fall victim to market panics. There is also a substantial dividend on offer. For 2012, AstraZeneca paid a $2.80 dividend. At today's price, that equates to a 6.3% yield.
There are concerns over AstraZeneca's ability to grow earnings in the future. Consensus is for a 4.4% decline in EPS this year, followed by another 4.3% fall in 2014. The large dividend payout makes it more difficult for AstraZeneca to finance acquisitions with cash. The low share-price rating will also make any paper-backed acquisitions more dilutive for shareholders.
Imperial Tobacco
Investors know that the number of cigarettes smoked worldwide has little to do with market or economic sentiment. This means that the shares of a big tobacco firm such as Imperial Tobacco (IMB 2.54%) are often low beta.
At today's price, Imperial also offers bargain potential. The shares trade on 11.1 times forecast 2013 earnings, falling to 10.3 times consensus estimates for 2014. The dividend is forecast to rise in 2013 and 2014, meaning that the shares offer the prospect of a 5.4% yield next year.
The industry faces powerful headwinds in coming years. Recently in the U.K., more restrictions on tobacco sales have come into force. In Australia, plain packaging was demanded from December last year. Governments around the world are making it more difficult to become a smoker.
Severn Trent
Don't make the mistake of assuming that utilities never disappoint investors. It is surprisingly common for investors in this sector to see earnings or dividends decline.
In the last five years at Severn Trent (SVT 1.30%), net profit is ahead by just 5.3%. Although dividend per share is up from 61.5 pence to 70.1 pence, the payout was cut 10% for 2011.
Severn Trent is forecast to increase its dividend by 8.2% for 2013, followed by another 6.1% increase the year after. This puts the shares on a prospective 2014 yield of 5%. Earnings are expected to increase this year and next, giving a 2014 price-to-earnings (P/E) ratio of 16.7 times consensus forecasts.
Like most utilities, Severn Trent carries a lot of debt. Don't assume that its dependable income stream means that earnings and dividends are gold plated.
United Utilities
United Utilities (UU 1.21%) provides water and sewerage services across North-West England. Like Severn Trent, United Utilities is a low-beta, high P/E, high-debt, high-yield water share.
If you want an example of a utility company that has been forced into dividend cuts, then check out United Utilities. The shareholder dividend at the company was cut 45.9% for 2009. This was followed by a 5% rise for 2010. Shareholders were disappointed again when the company cut the payout for 2011 by 12.5%.
In the last five years, dividends per share at the company have fallen by an average of 11.3% per year. In that time, EPS has fallen by an average of 2.4% a year.
The shares currently trade on a forecast P/E for 2014 of 16.9, with a forecast yield of 4.9%.
Reckitt Benckiser Group
Reckitt Benckiser (RKT 0.33%) owns a portfolio of household brands such as Harpic, Calgon, and Dettol. The predictable demand for these products makes Reckitt Benckiser's future sales more assured than most other listed companies'.
The strength of RB's brands gives the company pricing power. All of these positives flow through to strong shareholder returns. In the last five years, dividends have increased by an average of 19.5% per year. The shares are up 62.3% in that time.
EPS is forecast to reach 273 pence for 2014, with the dividend hitting 163 pence per share. That puts the stock on a 2014 P/E of 16.4, with a forecast yield of 3.2%. That's a small premium to pay for such a quality company.
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