We examine Unilever plc (LON:ULVR) and United Utilities Group PLC (LON:UU), and catch up with Rio Tinto plc (LON:RIO).
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It's about a month since we last had a look at the companies on our watchlist, so it's about time we checked to see how they're going. I've also added a new company to the list, and there's a bit of news from the portfolio itself that we should look at.
But firstly, here's the current state of the watchlist:
| Company | Market cap | Price | Forward P/E | Forward dividend |
|---|
| WS Atkins | £772m | 774p | 9.9 | 4.1% |
| Ricardo | £207m | 401p | 12.4 | 3.3% |
| TUI Travel | £3.2bn | 293p | 10.8 | 4.4% |
| Unilever | £31.2bn | 2,428p | 18.8 | 3.3% |
| United Utilities | £4.8bn | 711p | 17.6 | 4.9% |
| Trinity Mirror | £258m | 100p | 3.5 | 0.2% |
| Daisy Group | £246m | 91p | 6.8 | 1.7% |
| GKN | £3.9bn | 244p | 10.0 | 3.1% |
Unilever (LSE: ULVR) is a company that I've always liked, as it's solid and dependable, and a decent defensive share during downturns -- it makes the kind of household essentials that people just don't cut back on. It's mainly a dividend share, though the price has put on around 20% since the start of June.
But that price rise is the reason I'm unlikely to add it to the portfolio, as it has taken the price-to-earnings (P/E) ratio -- based on 2012 estimates -- to 18.8, and that just makes it a bit too expensive for me. After that rise, I can see the price remaining fairly flat over the next year or two, so buying it now would be just for the dividend. And with 3.3% forecast, there are more attractive dividends out there. So for me, Unilever just isn't a 'buy' right now, but we can keep watching it.
A better dividend
A dividend payer that I think is more attractive is United Utilities (LSE: UU). Like the rest of the utilities companies, what we're looking at here is a pure cash-cow, dividend investment, suitable to be kept for decades. And that forecast yield of 4.9% does look tasty. However, having United Utilities in the watchlist is really a placeholder for utilities companies in general, and if we buy one we will need to consider the alternatives. SSE (LSE: SSE), for example, offers a forecast 5.8% dividend yield for the year to March 2013, rising to over 6% for the next two years. It's on a lower P/E than United, too, of around 12.6 compared to 17.6. But at the same time, United has double-digit earnings growth forecast, versus SSE's 0% for this year, rising to 3% next.
Even though the prices have risen over the past year, I'm really starting to think that a utility company has to be a 'buy' for a long term portfolio like ours, and one of them may well take up one of our last two slots.
The newcomer
I've added GKN (LSE: GKN) to the list after taking a look at the company's strong share price growth of late (and thinking I wish I'd seen the potential earlier). The price is up around 20% since a positive update in October, expectations for the full year to December 2012 are strong, and analysts currently have 10% earnings growth tentatively pencilled in for each of the next two years.
Even after the recent price surge, the shares are still only on a P/E of 10, and there are thrice-covered dividends forecast with a yield of over 3%. The engineering sector is on a bit of a recovery as well, so on first inspection, GKN is looking like a 'buy'. Could we have a utility and an engineer making up our last two purchases? It's possible.
And some news
I wasn't happy to wake up on Thursday to the news that portfolio member Rio Tinto (LSE: RIO) had warned of a $14 billion (£8.8 billion) write-down relating to its aluminium business and its coal operations in Mozambique, and that chief executive Tom Albanese had been given the boot. With dread, I awaited the market's opening.
But what happened was surprising. The price opened more than 4% down, but immediately started to recover, and ended the day just 19.5p (0.5%) down on 3,439p. And on Friday the price rose further, ending the week 1% up on 3,502p. This investment world really is a strange one.
Rio Tinto remains a strong 'buy' for me.
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> Alan does not own any shares mentioned in this article. The Motley Fool has recommended shares in Unilever.
