LONDON -- National sweetheart Cheryl Cole is triple-A-rated: attractive, affluent, and available.
Conventional financial advice is that younger people can afford to put more of their wealth into shares. Using what I know about Ms. Cole, I've scoured the market to find shares that she might like to own.
These five companies might appeal not just to Cheryl but to anyone looking for a diverse group of blue chips.
|
Company |
Price (pence) |
P/E (forecast) |
Yield (forecast) |
Market Cap (millions of pounds) |
|---|---|---|---|---|
| BT (LSE: BT-A.L) | 225 | 9.1 | 4.2% | 17,610 |
| Sage (LSE: SGE.L) | 304 | 15.3 | 3.4% | 3,730 |
| Marks & Spencer (LSE: MKS.L) | 378 | 11.5 | 4.5% | 6,160 |
| Diageo (LSE: DGE.L) | 1812 | 17.7 | 2.6% | 45,630 |
| Unilever (LSE: ULVR.L) | 2336 | 18.5 | 3.3% | 66,310 |
1. BT
Not just a pretty face, Cheryl is also a proud Geordie. I figured she might like to put some of her hard-earned cash into BT shares. The telecom provider is a major employer in Cheryl's hometown and surrounding area with more than 3,800 staff on the payroll.
Shares in BT have had a good year and today trade within a whisker of their 52-week high. However, the next few years will be crucial to the company. BT's super-fast broadband service Infinity is key to its ability to compete with Virgin Media. With the recent purchase of some Premier League football rights for next season, BT will also be competing head-on with British Sky Broadcasting.
A long-term favorite with income investors, BT has increased its dividend for the last three years. At the interim stage this year, BT increased its payout by 15%. Market consensus forecasts are for a 9.4 pence per-share dividend for 2012, which puts the shares on an expected yield of 4.2%. The shares today trade at 9.1 times forecast earnings for 2013, falling to 8.9 times the expected 2014 result.
2. Sage
Financial-software specialist Sage is headquartered in Newcastle-upon-Tyne and is another major employer in Cheryl's native North East. Possibly of more interest to Cheryl is that Sage also provided significant funding for the development of the Sage Centre, the area's leading music venue.
In recent years, Sage has matured from a high-growth, high-P/E business into a respectable income/growth share. Its growth has led to a fast-accelerating dividend. From 3.59 pence per share in 2006, the payout has increased year on year and is expected to hit 10.4 pence per share for 2012, equivalent to an average advance of 22% per annum. The shares currently trade on a forecast yield of 3.4%, rising further to 3.7% for 2013.
Earnings growth at the company is also impressive, with profit increasing throughout the economic downturn. Analysts expect earnings of 19.9 pence per share for 2012, rising to 22.1 pence per share for 2013.
3. Marks & Spencer
The development of new food lines has been an important part of Marks' growth in the last 10 years. Indeed, one key culinary development during that time has been the emergence of the ready-meal for one. As a single lady with a busy job, our Cheryl might be a big consumer of M&S's convenient dinners. So, if she likes the product, why not buy the shares?
Like BT, Marks & Spencer is also trading close to a high for the year. However, less growth is expected from the high-street favorite. The dividend was held at the interim stage, suggesting that the final payout might also fail to progress. Nonetheless, the shares offer a healthy yield of 4.5%.
At present, the dividend is well-covered by earnings. But earnings did fall 9% during fiscal 2012, and a further 5% decline is forecast for this year. Analysts expect M&S to return to double-digit growth during 2014.
4. Diageo
Cheryl loves a good party, so certainly she can appreciate the vast portfolio of drink brands owned by titan brewer and distiller Diageo, whose labels include Guiness, Bailey's, and Smirnoff.
The financial crisis and resulting economic downturn have proved no barrier to Diageo's growth. In the last five years, sales at the company have increased 33%, while in the same time, dividends have improved at an average 6% per annum. Earnings per share have increased, on average, by 14% a year for the last five years, too.
Better still, further growth is forecast. Analysts expect profit and dividends to increase by 10% this year, followed by another similar rise for 2014.
5. Unilever
Even one of the most beautiful women on television needs her cosmetics. Anglo-Dutch giant Unilever is the company behind many of the U.K.'s leading personal-care brands, including Dove, Pond's Cold Cream, and Timotei.
Unilever also owns some food brands, such as Pot Noodle. Unfortunately for Geordie lass Cheryl, there doesn't seem to be a pease pudding flavor.
With such strong brands in its portfolio, Unilever is considered one of the bluest of blue-chip companies. Its share price growth in the recent months has pushed the shares to a 10-year high. However, only modest dividend and earnings growth is forecast for the next two years.
Cheryl, meet Warren
Finally, companies that own strong brands are a regular choice of super-investor Warren Buffett. The Oracle of Omaha has been buying shares in a famous British company recently. Discover which one in our free report: "The One U.K. Share Warren Buffett Loves." You can enjoy the report now -- simply click here and it will be delivered to your inbox immediately.
