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Should I Invest in These 5 FTSE 100 Shares?

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LONDOn -- To me, capital growth and dividend income are equally important. Together, they provide the total return from any share investment and, as you might expect, my aim is to invest in companies that can beat the total return delivered by the wider market.

To put that aim into perspective, the FTSE 100 has provided investors with a total return of around 3% per year since Jan. 2008.

Quality and value
If my investments are to outperform, I need to back companies that score well on several quality indicators and buy at prices that offer decent value.

So this series aims to identify appealing FTSE 100 investment opportunities and during recent weeks I've looked at Diageo  (LSE: DGE  ) , United Utilities  (LSE: UU  ) , Next  (LSE: NXT  ) , Babcock International Group  (LSE: BAB  ) , and Smiths Group  (LSE: SMIN  ) . This is how they scored on my total return-potential indicators (each score in the table is out of a maximum of 5):







Dividend cover


















Price to earnings












Total (out of 25)






Next scores highly on my quality and value indicators but there is plenty worth considering from these sector-diversified shares.

Alcoholic beverages
In recent news, premium drinks supplier Diageo revealed its new CEO, Ivan Menezes, will take control on July 1, 2013. However, Paul Walsh, the current post holder, is expecting to stick around until retiring on June 30, 2014. That sounds like a sensible succession strategy, typical of the fluent execution we've become used to seeing from the firm. With fast-paced growth in emerging markets currently contributing around 35% of profits, there's still much for investors to get excited over here and Diageo is on my watchlist.

A forward dividend yield around 5% isn't enough to tempt me into buying shares in United Utilities. The firm operates a regulated water and sewage business in the north of England, which is a capital-intensive pursuit as the firm's high debt level attests. A trend toward tougher industry regulation and a lackluster scoring on my quality indicators have combined to put me off. That said, it's a steady way to make a living with a captive customer base and may appeal to some investors.

Fashion clothing
I'm looking to get into Next, which has recently posted strong full-year results. The firm's clothing brand appeals to many Brits, who provide around 51% of revenue through its stores and about 46% via the directory business. There's untapped potential to grow abroad and that's what's keeping many investors interested.

Support services
I have my eye on engineering support services company Babcock International group. The firm is currently preferred bidder for contracts like ground fleet maintenance operations for British Airways, baggage handling and maintenance at Heathrow Airport, and weapons handling and launch equipment for an unnamed international customer. The valuation seems quite full just now, but the company seems to be making good progress.

North America provides around 50% of Smiths' revenue and U.S. government budget cuts in defense and other areas and an incoming medical device tax are weighing on forward growth and profit forecasts. The company provides engineering products, components, and services in areas such as threat and contraband detection, medical devices, energy, communications, and aerospace. Despite the short-term headwinds expected, the valuation is confident so I'm keeping Smiths on my watchlist for the time being.

What now?
It can be tough deciding which shares to buy for decent, ongoing total returns. But one of the shares in this article is also featured in a new Motley Fool report prepared by our top analysts highlighting five shares with seemingly impregnable, moat-like financial characteristics. "5 Shares to Retire On" presents shares that deserve consideration for any investor aiming to build wealth in the long run. For a limited period, the report is free. To download your copy now, click here.


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10/27/2016 10:35 AM
BAB $995.00 Down -14.00 -1.39%
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Diageo CAPS Rating: No stars
NXT $4752.00 Up +22.00 +0.47%
Next CAPS Rating: No stars
SMIN $1419.00 Down -14.00 -0.98%
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UU $927.00 Down -3.00 -0.32%
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