LONDON -- Big is beautiful. Big is better. Size matters. Investors are regularly told that investing in large companies is safer. But just who are the largest companies on the market today, and what might their future hold?
Companies don't turn into global titans overnight. It took these giants decades to get where they are today. Some of these companies have products with a heritage going back more than 100 years. Others were founded with government support.
In this article, I will be looking at the top half of the top 10: the five largest companies in the whole of the U.K. market.
|
Company |
Price (pence) |
P/E (forecast) |
Yield (forecast) |
Market cap (millions of pounds) |
|---|---|---|---|---|
|
HSBC |
596 |
10.8 |
4.5% |
109,660 |
|
Vodafone |
180 |
11.4 |
7.2%* |
89,320 |
|
BP |
437 |
7.5 |
4.5% |
83,350 |
|
Royal Dutch Shell |
2,221 |
8.4 |
5% |
82,870 |
|
GlaxoSmithKline |
1,450 |
12.6 |
5.1% |
72,170 |
Source: Stockopedia. *Some analysts expect another special dividend.
Here is the lowdown on each of them.
1. HSBC
HSBC's history goes back to 1865, when the bank was founded by Sir Thomas Rutherford in Hong Kong. The acquisition of Midland Bank in 1992 brought the HSBC brand to Britain's high streets. The company's headquarters moved to the U.K. in 1993.
HSBC is frequently considered preferable to the more U.K.-centric banks: Lloyds, Barclays, and Royal Bank of Scotland. HSBC's strong market position in Asia means that its business is more globally diverse.
HSBC has long been a stronger bank than its closest U.K.-listed peers. It continued to pay shareholder dividends throughout the financial crisis. And although the dividend was cut, the bank remained profitable throughout the worst.
Earnings for 2012 are expected to show a small decline from the 2011 numbers. The dividend is expected to continue growing for the next two years.
2. Vodafone
Vodafone is the youngest of the FTSE's biggest companies. The company was spun out of Racal Electronics in 1991. Today, Vodafone employs more than 80,000 people around the world. Surprisingly, only 10% of staff is based in the U.K., Vodafone's country of incorporation.
As demand for mobile technology has grown worldwide, Vodafone has matured. Many consumers today regard their mobile phone as nondiscretionary. Vodafone is considered more of a utility than a technology company.
Vodafone's growth is best demonstrated by its shareholder dividend. From 1.34 pence per share in 2000, the dividend last year hit 9.52 pence.
While the policies of telecom regulators have hit profitability recently, the company still looks inexpensive when compared to the rest of the market. Today, Vodafone shares trade at just 10.9 times the consensus earnings per share forecast for 2014.
3. BP
In 1954, the Anglo-Iranian Oil Company was renamed British Petroleum. In 2001, this was changed to plain BP. BP's history is long, colourful, and complicated. Its recent past has been similarly eventful. Its future is today a source of considerable speculation.
BP continues to recover from the 2010 Gulf of Mexico oil spill. But it is debate over the company's long-term presence in Russia that is currently exercising investors. BP is in discussions with its oligarch partners in their joint venture, TNK-BP. It is possible that BP may sell its stake in the venture or buy out its partners. As a result, investors are currently playing "wait and see" with BP shares.
Since the Gulf of Mexico disaster, dividends have been rising again. BP is expected to pay 13 pence in dividends for 2013, a 36.8% increase on the 2012 payout.
4. Royal Dutch Shell
Shell is an Anglo-Dutch company. The company is headquartered in The Hague, and its registered office is in London.
Shell is one of the FTSE 100's outstanding companies and has not cut its dividend to shareholders since the end of World War II. Its strength, history, and technical excellence have helped make the company into one of the most popular income shares on the market.
Dividend growth has been slower recently, averaging just 5.7% per annum in the last five years. Analysts expect the payout to accelerate for 2012. The consensus expectation is for a 7.1% rise in dividends this year, followed by a 3.7% rise in 2013.
The modest forward price-to-earnings ratio makes the company a rare investment opportunity: Shell is an established blue chip with income and value qualities.
5. GlaxoSmithKline
It should be obvious from the name that pharmaceuticals giant GlaxoSmithKline was forged through corporate mergers. The company came into being in 2000, following the merger of GlaxoWellcome and SmithKline Beecham. Today, the company is headquartered in Brentford.
GlaxoSmithKline is another blue-chip company with a reputation as a safe investment. In the last five years, the biggest drawdown (i.e., loss incurred by the worst possible buy-sell timing) is just 26%.
The consensus of analyst forecasts suggests that Glaxo is in for another two years of earnings and dividend growth. At today's price, GSK trades on 11.8 times the 2013 forecast. By then, the dividend yield would be 5.4% for someone buying now. Additionally, Glaxo is the only one of the FTSE's five biggest companies that has been increasing its dividend for each of the last five years.
GlaxoSmithKline is a significant holding of top fund manager Neil Woodford. Woodford has outperformed his rival investors over the last one-, five-, and 10-year periods. If you want to learn more about what this money master has been buying, then download the free Motley Fool report "8 Shares Held By Britain's Super Investor." The report will be delivered to your inbox immediately.
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