While the UK's premier index is making new highs, the likes of Royal Dutch Shell Plc, Vodafone plc and GlaxoSmithKline plc remain attractive.
The FTSE 100 (UKX) is up over 3% in January -- but don't think that there are no cheap shares around. There is always a stock worth buying somewhere, whatever the market conditions...
I trawled the FTSE 100 to find companies trading within 12% of their lowest point for a year. My screen has turned up a large number of shares worthy of further research.
| Name | Price (p) | P/E (forecast) | Yield (forecast, %) | Market cap (£m) |
|---|
| Royal Dutch Shell (LSE: RDSB) | 2,220 | 8.4 | 4.9 | 138,917 |
| Vodafone (LSE: VOD) | 160 | 10.3 | 6.1 | 78,714 |
| GlaxoSmithKline (LSE: GSK) | 1,382 | 12.3 | 5.4 | 68,082 |
| British American Tobacco (LSE: BATS) | 3,175 | 15.4 | 4.2 | 61,495 |
| BG | 1,038 | 12.3 | 1.6 | 35,309 |
| Imperial Tobacco | 2,443 | 11.4 | 4.8 | 24,136 |
| Pearson | 1,222 | 14.4 | 3.7 | 9,971 |
| WM Morrison Supermarkets | 257 | 9.6 | 4.6 | 6,188 |
| Aggreko (LSE: AGK) | 1,765 | 17.4 | 1.3 | 4,736 |
| Severn Trent | 1,610 | 17.1 | 4.7 | 3,837 |
Data from Stockopedia
I've picked out five shares for further research.
Royal Dutch Shell (Shell)
Shell trades on just eight times broker forecasts for 2013. The expected dividend payout for the year is expected to hit $1.80. At today's share price, that's an expected yield of 5%.
There are few better dividend payers in the world than Shell. Shareholders have not suffered a dividend cut since the end of World War II. Since 2006, the payout is up nearly 50%.
Bears worry over Shell's ability to replace its reserves. BP's Gulf of Mexico misfortune forced investors to reassess the risk investing in big oil companies.
This low could present a great opportunity to buy into a large, financially secure super-share.
British American Tobacco (BATS)
BATS has long been considered one of the most dependable blue-chip shares in the FTSE 100. In the last five years, earnings per share (EPS) at the company has increased, on average, by 10.1% per annum. In that time, dividend growth has been even faster. The payout has been increased, on average, 17.7% a year. The dividend has been increased every year since 1998.
Dividend growth is forecast to moderate this year and next. Expectations are for the next set of results to show a 27.0% increase in EPS, followed by a 9% rise for the year after.
I'm not excited by the prospects at BATS, however. I think that in the UK, cigarette consumption is now in a period of permanent decline. With a forward price-to-earnings (P/E) ratio of 15.4, BATS is going to have to increase sales in developing markets to stop its shares drifting much lower.
Aggreko
In the last five years, Aggreko has been one of Britain's great export stories. The company specialises in the rental of temporary power-generation equipment. Business has boomed off the back of large-scale military deployments and big sporting events.
In the last five years, sales increased threefold. Earnings increased fivefold. The dividend was increased, on average, 24.5% a year. By 2012, the market was in love with the stock: Agrreko's P/E hit 20 and the company was promoted to the FTSE 100.
However, in December a trading statement from the company saw the shares lose over 20% of their value. The absence of a large event like the Olympic Games and a reduction of troop numbers in Afghanistan means a drop in earnings is being forecast for 2013.
GlaxoSmithKline
The Glaxo dividend is forecast to grow 4.4% in 2013 to reach 77.5p per share. At today's share price, that equates to a 5.6% dividend yield. 2013 earnings are forecast to be 5.2% ahead of what the company made in 2012. What's not to like?
It is worth noting that analyst expectations of 2012 profitability have spent the last year falling. This time last year, earnings per share of 123.3p were expected for 2012. Now it is 112.3p. In the last three months, 5.5p has been trimmed from consensus expectations for 2013.
While things are not bad at Glaxo, the forecasts demonstrate that perceptions have been worsening.
Vodafone
Vodafone is expected to overtake Shell in 2012 as the biggest dividend payer in the FTSE 100. A huge part of Vodafone's 2012 payout is from a special dividend that the company paid in February last year. Vodafone itself got this money from its US joint-venture, Verizon Wireless.
Vodafone received a further £2.4bn dividend from Verizon Wireless at the end of 2012. To some shareholder disquiet, Vodafone plans to use £1.5bn of this buying back its own shares.
As a Vodafone shareholder, I'm not particularly upset by this. With a forecast yield for 2013 of 6.1%, the shares already deliver good income.
Vodafone shares are up 3% this year. Since the buyback programme commenced on 10 December, Vodafone has spent £166m on share repurchases. In other words, the buyback is little more than one tenth complete.
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> David owns shares in Vodafone but none of the other companies mentioned. The Motley Fool has recommended shares in Vodafone.
