15 blue chips, 15 bargains.
The retail clients of Alliance Trust Savings, I like to think, are a canny bunch. It was precisely to please those clients, for instance, that Alliance Trust Savings was the first fund platform in the UK to offer Vanguard's market-leading range of ultra-low-cost index trackers back in 2010.
So given that the firm has begun circulating a list of the shares that its clients have been buying each month, I thought I'd take a look. And the blue chips in question, I have to say, are a fairly respectable lot -- no falling knives or 'flash in the pans' here.
What's more, it's difficult to quibble with valuations. One or two are a tad on the expensive side, but only marginally. And despite that, they're still popular -- precisely because they are blue chips, with all that the tag carries by way of dependability and decent growth prospects.
| ||Price (p)||Forecast P/E||Forecast yield||Market cap (£bn)|
|Vodafone (LSE: VOD)||179p||10.8||7.2%||£88.2bn|
|GlaxoSmithKline (LSE: GSK)||1435p||11.7||5.4%||£71.1bn|
|National Grid (LSE: NG)||691p||12.6||5.9%||£25.1bn|
|Aviva (LSE: AV)||323p||6.2||8.0%||£25.1bn|
|Royal Dutch Shell (LSE: RDSB)||2196p||7.9||5.1%||£138.3bn|
|BP (LSE: BP)||434p||7.0||5.0%||£82.9bn|
|Rio Tinto (LSE: RIO)||3032p||7.5||3.6%||£55.9bn|
|SSE (LSE: SSE)||1427p||11.8||6.1%||£13.6bn|
|RSA Insurance (LSE: RSA)||113p||8.2||8.5%||£4.0bn|
|British American Tobacco (LSE: BATS)||3219p||14.2||4.5%||£62.4bn|
|Imperial Tobacco (LSE: IMT)||2280p||10.7||4.9%||£22.6bn|
|BAE Systems (LSE: BA)||322p||7.8||6.2%||£10.5bn|
|Anglo-American (LSE: AAL)||1843p||808||2.8%||£25.5bn|
|Diageo (LSE: DGE)||1764p||17.4||2.7%||£44.1bn|
|J. Sainsbury (LSE: SBRY)||354p||11.3||5.0%||£6.7bn|
Source: Alliance Trust Savings
Five for the future
To me, five of these picks stand out as especially interesting. Well diversified, they offer a decent yield, a decent history of dividend growth, reasonable valuations by way of entry point, and hefty market capitalisations.
First up is Vodafone (LSE: VOD), the single-most popular blue chip bought by Alliance Trust Savings' clients last month. The world's second‑largest mobile telecommunications company measured by both subscribers and 2011 revenues, Vodafone has 390 million customers, employs over 83,000 people, and operates in over 30 countries across five continents.
According to analysts, the firm is already seeing an uptick in demand for enhanced data services, and looks set to continue to churn out decent dividends for years. Trading on a forecast price-to-earnings (P/E) ratio of 10.8, Vodafone offers a prospective dividend yield of 7.2%.
Next comes GlaxoSmithKline (LSE: GSK), the third-most popular 'buy' with Alliance Trust Savings' clients last month. Glaxo employs around 97,000 people in over 100 countries, manufacturing and selling pharmaceutical products as well as its strong range of consumer-friendly brands: Ribena, Horlicks, Lucozade, Aquafresh, Sensodyne and the Macleans range of toothpaste, mouthwash and toothbrushes.
In short, Glaxo is a share that falls firmly into the 'consumer non-discretionary' category, and provided that the drugs pipeline continues to deliver -- as it has done for decades -- then this blue chip offers staying power coupled to a decent (and growing) dividend. Trading on a forecast P/E of 11.7, Glaxo offers a prospective dividend yield of 5.4%.
Royal Dutch Shell (LSE: RDSB) offers a rare level of dependability. Oil isn't going to go out of fashion any time soon, and oil prices seem unlikely fall soon. What's more, Shell hasn't cut its dividend for almost 60 years. Operating over 30 refineries and chemical plants, and 43,000 retail filling stations in 80 countries around the world, Shell is one of the few companies in the world with the operational muscle and financial firepower to feed the globe's energy demands.
Throw in a low P/E and a good yield, and Shell to me looks a safe blue-chip bet. Trading on a forecast P/E of 7.9, Shell offers a prospective dividend yield of 5.1%.
SSE (LSE: SSE) is one of just five FTSE 100 (UKX) companies to have delivered a real dividend increase every year since 1999. A UK-based energy supplier, it delivers power to around 3.7 million homes, offices and businesses, and is also the UK's second largest electricity generation business.
Throw in the UK's largest onshore gas storage facility, and a 50% share of Scotia Gas Networks, which has around 75,000km of pipelines delivering gas to around 5.7 million homes and businesses, and you've got a sizeable business. Trading on a forecast P/E of 11.8, SSE offers a prospective dividend yield of 6.1%.
British American Tobacco
Finally comes British American Tobacco (LSE: BATS), the world's second-largest quoted tobacco group by global market share, possessing 200 brands sold in around 180 markets, and with 46 cigarette factories in 39 countries manufacturing the cigarettes chosen by one in eight of the world's one billion adult smokers.
Does that exposure to tobacco pose a risk to the stock in the years ahead? Of course. Smoking is a health hazard, and has been known as such for years. But right now, out of my window, I can see several people who surely know all this, all puffing away -- as are billions of others. So why not profit from their loyalty to tobacco? Trading on a forecast P/E of 14.2, British American Tobacco offers a prospective dividend yield of 4.5%.
The Buffett factor
Interestingly, there's one bargain blue chip that didn't appear in Alliance Trust saving's list of September 'buys'. It's a share with an unbroken 25‑year history of solid growth and rising dividends, which today is trading on a P/E of 9.1 -- well below the broader FTSE 100 -- and which also offers a dividend yield of almost 5%. It's also a share that I've been loading-up on in recent times, having quadrupled my holding this year -- and I've not been alone. Warren Buffett, in short, has been buying as well.
Its name? You can find that out in a special free report from the Motley Fool -- “The One UK Share Warren Buffett Loves” -- which explains why Buffet likes this share, and the price that he's paid for his stake. The report is free, so why not download a copy now?
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> Malcolm owns shares in GlaxoSmithKline, Aviva, BP, SSE, BAE Systems, and Sainsbury. He does not have an interest in any other shares listed.