Five nominations for the Footsie's champions of consistency.
We can't help loving companies that do the business year in, year out, increasing the value of our investments with no nasty surprises along the way. So, which FTSE 100 companies are the champions of consistency?
Andrew Lapthorne, an analyst at Société Générale, came up with a list of reliable buy-and-hold shares earlier this year. He looked at every FTSE All-Share company with a trading history of at least ten years. He then narrowed them down to twenty shares you could have bought in any month since 1993 (or their listing date) and been certain to have made a positive total return if you held them for five years.
Mr Laphorne's list has been reported on uncritically in the financial media, but here at The Motley Fool we like to go the extra yard! In this case, to warn you that, in the coming months, rolling five-year returns will run up against tough comparatives of the 2007 market highs. Hence, a number of the Laphorne 20 are likely to fall from their consistency pedestals -- indeed, a couple appear to have done so already.
However, let's not throw the baby out with the bathwater. I tend to agree with Mr Laphorne that consistent share-price performance over a long period probably indicates some form of competitive advantage. Hence, I've taken a closer look at the nine FTSE 100 companies on his list.
Five Footsie champions
Taking a rising annual dividend and a superior long-term total return as further indicators of a strong and reliable business, I subjected the nine blue chips to two tests: an increasing dividend every year since the turn of the millennium and an annualised ten-year total return in double figures.
Here are my five Footsie champions of consistency, ranked by total return:
|Company||Business||Annualised 10-year total return||Current share price||Forecast 12-month P/E||Forecast 12-month dividend yield|
|BHP Billiton (LSE: BLT)||Mining||19.5%||1,893p||7.7||4.0%|
|Reckitt Benckiser (LSE: RB)||Household Goods||13.0%||3560p||14.4||3.6%|
|Next (LSE: NXT)||Retail||12.3%||2,936p||10.8||3.4%|
|Imperial Tobacco (LSE: IMT)||Tobacco||12.2%||2,478p||11.7||4.5%|
|SSE (LSE: SSE)||Electricity||11.2%||1,358p||11.4||6.2%|
I can't guarantee these five companies will be as consistent in the future as they've been in the past, but their price-to-earnings (P/E) ratios and dividend yields look fairly reasonable against their historical levels. In other words, there's a better chance of them delivering a positive return over the next five years than if their P/Es were at historical highs and yields at historical lows.
What about the four blue chips that didn't quite make my cut for consistency? I'd say they still have merit -- indeed, you may argue that some of them are better candidates than the five I've picked!
Beer company SABMiller (LSE: SAB) and oil and gas producer BG Group (LSE: BG) both have low dividend yields -- 2.6% and 1.2%, respectively -- and had periods of flat dividends in the early Noughties. However, as their relatively high P/E ratios of 16.6 and 14.3 suggest, this pair have a growth bias, and there's no arguing with their annualised ten-year returns of 17.9% and 17.0%.
Drinks group Diageo (LSE: DGE) -- P/E 15.5%, yield 3.0% -- has a decent growth and income record. It only failed to make the cut because its annualised ten-year return of 7.3%, while perfectly respectable, fell short of the double-figures return achieved by the five in the table.
Finally, Centrica (LSE: CNA) is another with an annualised ten-year return in single figures (6.6%). Unfortunately, it's also one of those I mentioned earlier whose fall from grace on the Laphorne running-five-year-return measure is imminent if it hasn't already happened.
Others to consider
For the sake of completeness, the companies outside of the FTSE 100 on Mr Laphorne's list are:
I haven't looked too closely at these, but Centamin, Synergy and Hardy appear to be three that might struggle to make Mr Laphorne's list if he repeated the exercise this time next year. Some of the others, though, could certainly be worth further research.
Which company would you nominate for a Long Service To Shareholders Award? The comments box below is all yours.
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> G A Chester owns shares in Reckitt Benckiser.