Centrica (LSE: CNA) (NASDAQOTH: CPYYY.US) is the FTSE 100 business behind domestic fuel supplier British Gas. The company employs 33,000 staff directly. In 2012, Centrica’s operations generated £1.1bn of taxes payable to the Exchequer. Centrica is a big, blue-chip business. It plays a key part in the UK economy.

The threat

In September, Ed Miliband, leader of the opposition, announced a new energy policy. Should his party be elected in 2015, Mr Miliband has promised to freeze gas and electricity to consumers until 2017.

Since then, the shares the have fallen significantly, out of fears that government interference could significantly damage shareholder returns.

The reaction

Before Mr Miliband piped up, shares in Centrica traded at 402p. Since then, they have fallen to 336p, close to their low for the year. Other than a sharp fall in 2008 when announcing a rights issue, I can find no other time in the last five years when shares in Centrica have reversed so quickly.

The fall does not seem entirely unreasonable. Centrica shares were trading on a generous valuation in the summer. It is fair that investors would now regard Centrica as a riskier share than they did previously. When that occurs, investors will demand a discount before buying again.

The valuation

Centrica shares today trade at 13.1 times last year’s earnings per share (EPS). At today’s price, last year’s dividend of 16.4p per share equates to a yield of 4.9%. At the half-year stage, the interim dividend was increased by 6%. If this rise is repeated with the finals, the shares will yield 5.2% this year.

Verdict

At the current valuation, Centrica is beginning to look interesting. Given how important Centrica is to the UK’s infrastructure, I do not believe that politicians of any shade will seek to wreck the company’s long term future.

The expected dividend is reasonably well covered by profits, which should give income investors some comfort. Given the political heat, Centrica is not without risk. However, for an income investor looking to build a balanced portfolio across sectors, these shares could be just the ticket.

The post Has Energy Controversy Made Centrica PLC Shares A Buy? appeared first on The Motley Fool UK.

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> David does not own shares in any of the companies mentioned.

In the three years between the start of 2010 and the end of 2012, shares in Vodafone (LSE: VOD)(NASDAQ: VOD.US) traded between 137p and 190p. For much of that time, the normal trading range for the stock was much narrower, typically trading between 165p and 180p.

2013 has seen a dramatic change. Beginning the year at 155p, the shares have risen consistently. Earlier this week they traded as high as 231p.

A series of events has led investors to dramatically re-appraise the value of Vodafone shares for the better. The trouble is, the most optimistic scenario for the shares has already happened. This leaves me wondering whether the shares are still worth owning.

Why the big rises?

Sentiment toward Vodafone changed when the group began receiving huge dividends from its US joint venture Verizon Wireless. Despite the fact that these payments were not guaranteed, some investors were convinced that the cashflows would continue.

This was followed by noises from Vodafone’s partner in Verizon Wireless, stating that they would like to buy out Vodafone’s stake.

In August, Vodafone announced that it was in discussions to sell. This pushed the shares through their previous 190p barrier to close at 206p. When the deal was confirmed, the shares hit 213p.

Life after Verizon Wireless

The deal will see around 112p per share returned to Vodafone shareholders, likely in the first quarter of 2014. The company has also pledged to declare an 11p dividend for the year and that this payout will be increased in the future.

Assuming that the share price will lose 112p following this one-off payment, that will leave a company with a high quality earnings stream offering an 11p dividend.

If we reduce the current share price by 112p and apply an 11p dividend to what remains, that suggests that Vodafone shares offer a forward yield of 9.3%.

Verdict

With mobile computing on the rise globally, there is a great opportunity for Vodafone to establish strong, new income streams in developing markets. On the other hand, trading in its mature European markets has been subdued and the telecom regulators apparently hostile.

All this considered, I believe that there remains a case for Vodafone shares to trade around 25% higher than they do today. The shares remain some way off being overpriced.

The post Is It Time To Sell Vodafone Group plc? appeared first on The Motley Fool UK.

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> David does not own shares in any of the companies mentioned.

The shares today

So far in 2013, it has been no contest between these two shares. Barclays (LSE: BARC)(NYSE: BCS.US) has barely risen, ahead just 1%. Shares in Lloyds (LSE: LLOY)(NYSE: LYG.US) have soared 45% in the same period.

In that time, Barclays shareholders were given the opportunity to stump up for more shares at 185p in a controversial rights issue. Although the Lloyds share price has performed significantly better, Barclays shareholders have done better than the share price suggests. As well as the rights issue opportunity, the bank has already declared 3p of dividends. Lloyds does not pay a dividend.

The recent past

September was an eventful month for both. While Barclays went through the process of raising money, Lloyds saw its largest shareholder, the UK government, begin selling its stake.

The logic to be applied here is clear: Barclays was in a weak position, so needed to raise more funds. Lloyds was well on the way to a full recovery, which enabled to goverment to sell a large chunk of shares in the bank to hungry institutions.

However, the recovery at Lloyds has only reminded the market that there is a seller waiting to dispose of huge line of stock. Moreover, this seller is willing to accept 75p for their shares. The effect has been to ‘anchor’ Lloyds shares at around 75p.

While confidence in Barclays took a battering, at least the rights issues presented an opportunity to make big returns.

Barclays has also outperformend Lloyds in recent weeks. In the last month, Barclays shares are 1.9% ahead. Lloyds is down 3.2% in that time.

The future

The market has convinced itself of Lloyds’ recovery. Barclays still has some issues however and these are affecting profitability and perceptions. If management can successfully turn things around at Barclays, then the shares could enjoy a significant rerating.

Current broker forecasts back up this possibility. In 2014, Barclays is forecast to make EPS (earnings per share) of 30.9p. That puts the shares on a 2014 P/E of just 8.5. Lloyds currently trades on a 2014 P/E of 10.9: a 28% premium.

A big dividend increase is expected from Barclays next year, pushing the yield on the shares to 4.1%.

The post Why I Am Glad I Own Barclays PLC And Not Lloyds Banking Group PLC appeared first on The Motley Fool UK.

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> David owns shares in Barclays but none of the other companies mentioned.

After a long and complicated corporate history that dates back to the beginning of the 20th century, Imperial Tobacco (LSE: IMT)(NASDAQOTH: ITYBY.US) was spun out of the conglomorate Hanson Trust in 1996. Today the company employs 37,000 people and owns some of the world’s most successful tobacco brands.

The problem is that smoking kills. Many consumers can hardly afford the product and only buy because they are addicted. Ethical and public health concerns are forcing governments worldwide to increasingly tighten the rules around marketing, sale and consumption of tobacco products. Add in the threat posed by e-cigarettes and you have a toxic profit-destroying cocktail.

Pain, no gain but dividends to die for

Now it is shareholders’ turn to feel the pain. In the last two years, shares in Imperial Tobacco have broadly gone nowhere. So far this year, the stock is unchanged while the FTSE 100 is 13% higher.

However, Imperial has not disappointed income investors. The company has been paying a growing dividend since 2003. With its interims earlier this month, the company confirmed its intention to increase dividends annually by “by at least 10 per cent per year over the medium term.”

Forecasts

Unfortunately, the outlook for earnings growth is less impressive. Forecasts for 2014 profits have been falling month-on-month for the last year. Twelve months ago, analysts were forecasting earnings per share of 232p from the company. Today, that is 217p. While that s a cut of just 6.5%, the reduction in expected growth is significant.

With anti-smoking regulations tightening worldwide, for how much longer can Imperial continue to deliver profit growth?

Verdict

The sector has wobbled recently following some bearish comment from US giant Philip Morris. The Marlboro-maker has forecast big sales declines in Europe, including an eye-catching forecast of a fall of as much as 11% in Russia next year.

Government controls, tax rises (encouraging counterfeiting) and consumers having better access to education will prolong this trend.

Add in the rise of less profitable alternatives (e-cigarettes) and the long-term outlook for industry is bleak. I expect Imperial to be priced as an ex-growth stock within two years. Moreover, I am confident that once growth leaves this business, it will never come back.

The post Is Imperial Tobacco Group PLC Dead In The Long Term? appeared first on The Motley Fool UK.

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This 2013/2014 football season, BT Group (LSE: BT-A)(NYSE: BT.US) began broadcasting Premier League football for the first time. The broadcasting rights for this will cost BT £246m this year and next. BT now has broadcast rights for around one quarter of all live Premier League games.

The markets welcomed this as a clear demonstration of intent on BT’s behalf to diversify and compete. However, in doing so, BT was competing head-to-head with Sky (LSE: BSY)(NASDAQOTH: BSYBY.US), a strategy that has proved nearly fatal for others in the past. BT’s Premier League land-grab was at the time regarded as courageous (i.e. could backfire nastily) rather than inspired.

The clever move on BT’s part was bundling free Premier League football with its broadband offering. This served to bring in more customers from rivals and incentivised existing customers stick with BT and consider trading-up to higher-speed services.

The Champions League gambit

Earlier this month, BT topped this, blowing Sky out of the water during the bidding process for European football rights. This will cost BT around £300m a season and give BT Sport exclusive live broadcast rights for every Champions League and Europa League game.

Just as Sky used football to cement its position as leading pay-TV provider, BT is using the same tactic to compete. From the 2015/2016 season, supporters will have a great excuse to dump Sky.

BT’s progress so far has encouraged investors, who have bid the shares up 20% in the last six months. By contrast, Sky shares are just 5% ahead in the same period.

My verdict

BT isn’t doing things by halves. However, its strategy must yield profits soon if managers are to justify continuing to outbid Sky. There is also the fact that non-football content on BT Sport is struggling to secure a meaningful audience. Contrast that with Sky, who have successfully invested in hits such as Battlestar Galactica and are today attracting audiences with Dracula and The Tunnel.

Sky is the UK’s pay-TV behemoth. BT might be able to chip away at Sky’s profits but will have to do much more if it is to win in the long term.

The post Is BT Group plc A Real Challenger To British Sky Broadcasting Group plc? appeared first on The Motley Fool UK.

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> David does not own shares in any of the companies mentioned. The Motley Fool has recommended shares in British Sky Broadcasting.

What’s the big deal?

Another PR disaster hit RBS full in the face this weekend. Vince Cable, the government’s Business Secretary, has complained to regulators over claims that RBS has been opportunistically foreclosing on businesses that were in default.

Fully aware of how popular nasty bank stories are, the media has been reporting this news as though RBS is deliberately damaging the UK recovery. Fortunately, the markets are a bit more hard-headed than that. Investors want to see RBS dealing with problem borrowers swiftly and decisively. While this may be result in some bad PR for RBS, it might not be bad banking.

The fact that the shares are ahead today demonstrates just how robust RBS shareholders are. If they cannot bring themselves to sell on a bad news day with the shares at 333p, how much bad news is already in the RBS share price?

RBS shares today

At 333p, the shares are 13% down on the two-year high that they reached in October. This fall followed the news that the bank would be rushing to sell assets in its non-core ‘bad-bank’ portfolio. This will likely cost £4bn more than planned.

Brokers are forecasting that RBS will report EPS (earnings per share) of 25.7p for 2014. That puts the shares today on a 2014 P/E of 13.0 times profits. The last reported net tangible asset value of the bank was 431p per share, though that figure will fall when the non-core fire sale begins.

The future

The resilient share price tells me that RBS shares could rise significantly if sentiment can be turned. I wonder if the current discussions between RBS and the government on the bank’s ability to pay future dividends could spark this change. If RBS can secure permission to start paying again, this could signify a return to being rated as a normal bank again.

Verdict

Shares in a bank can always fall further. As an RBS shareholder, I calculate that at this price, big rises are more likely than large falls.

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> David owns shares in Royal Bank of Scotland but none of the other companies mentioned.

Background

Royal Mail (LSE: RMG) shares first came to market in the middle of October. Since IPO at 330p, the shares have traded as high as 585p. Investors that bought at IPO have been well rewarded — too well, according to some.

Shareholders should not allow this kind of noise to distract from the real question: how profitable will Royal Mail be in the long term? We only have to wait until Wednesday for a steer on this when the company announces its half-year results.

What to expect

According to the consensus of broker forecasts, Royal Mail is expected to report earnings per share (EPS) of 45p for the full year ending on 31st March 2014. Total dividends for the year are forecast to come in at 20p.

The Christmas delivery schedule has a large effect on Royal Mail’s annual sales figure. Provided Royal Mail gets it right operationally, we should expect a large skew in profits between the first and second halves of its financial year.

This means that H1 EPS will likely be significantly less than half the 45p forecast for the year as a whole.

Investors may also get a surprise if they are expecting Royal Mail to announce an interim dividend. In the pre-IPO prospectus, Royal Mail bosses announced that they plan to forego an interim dividend, instead declaring a total payout of £133m with finals.

What to look out for

Yesterday, competitor UK Mail reported a 21% increase in parcel revenues along with broadly unchanged standard mail sales. The company also boasted an increase in market share and a 63% increase in operating profits.

Investors will want to see that Royal Mail is competing and that workforce issues are not damaging profitability. With the continuing growth in online shopping, I expect that the figures from Royal Mail’s parcel business will be key.

With the shares priced today at 12.2 times forecast earnings for the year, Royal Mail will have to demonstrate that it is positioned for earnings growth to justify its current share price.

Separate to the company’s earnings announcement, we may soon get more news on what the government plans to do with its remaining 30% stake in the company.

The post Is Royal Mail PLC Set To Post First-Class Results? appeared first on The Motley Fool UK.

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> David does not own shares in any of the companies mentioned.

Strengths

The size and diversity of HSBC (LSE: HSBA)(NYSE: HBC.US) is a key strength. In the first half of the year, the Far East contributed nearly two-thirds of group profit. This balance may shift in coming years as European and North American markets recover.

Weaknesses

HSBC does not have the same clout in investment banking as Barclays or Morgan Stanley. While this may have worked to the group’s benefit during the financial crisis, now that markets are picking up, HSBC could lose some ground to its rivals.

Opportunities

HSBC never had to ask for a taxpayer bailout during the financial crisis and has been relatively untouched by the LIBOR and PPI miselling schandals. The reputational damage suffered by Barclays, Lloyds and RBS gives HSBC an opportunity to win significant business in the UK market.

Threats

The UK government’s banking levy is charged on assets owned by the banks. However, with much of its assets overseas, HSBC’s charge seems disproportionate. If UK regulators continue their assault on the sector, HSBC may be forced to relocate.

Standard Chartered

Strengths

Standard Chartered (LSE: STAN)(NASDAQOTH: SCBFF.US) is a great way to access high-growth markets. They key difference between Standard Chartered and the rest of the UK banks is Standard’s focus on emerging markets. In 2012, 42% of Standard Chartered’s profits came from Hong Kong, Singapore and Korea combined. 10% of group profits were generated in India. Just 4% of group profit was earned in Europe, the UK and the Americas combined.

Weaknesses

The absence of a strong investment banking offering is particularly notable. As the economies served by the bank mature, it becomes increasing possible that Standard could begin to lose business to banks with a stronger reputation for providing investment banking services worldwide.

Opportunities

Many UK companies are enjoying strong growth in Africa. Standard Chartered recently reported 16% income growth and 10% profit growth in the continent. Of all the world’s major banks, Standard Chartered is probably the best-positioned to benefit from the economic growth that the continent is experiencing.

Threats

For years now, Standard Chartered has been reporting the kind of returns that other UK banks could only dream of. If the likes of HSBC and Barclays invest resources in Standard Chartered’s strongest markets, margins could suffer.

The post A SWOT Analysis Of HSBC Holdings plc And Standard Chartered PLC appeared first on The Motley Fool UK.

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> David owns shares in Barclays and RBS but none of the other companies mentioned. The Motley Fool owns shares in Standard Chartered.

Today, Royal Dutch Shell (LSE: RSDB)(NYSE: RDS-B.US) employs more than 80,000 staff worldwide. The company has over 100 years of history. Shell is a true titan share.

For investors, the company’s name has become synonymous with financial strength, dependability and big, reliable dividends.

Dividends past

Shell pays its shareholders four times a year in quarterly dividends. These payments are announced in dollars. However, anyone owning the ‘B’ class shares (ticker: RDSB) will be paid in sterling by default.

In 2011, Shell paid out more cash in dividends than any other UK-listed company. The company fell to second place in 2012 when Vodafone declared a large, special dividend. Shell looks set to regain the crown this year.

In dollar terms, the Shell dividend has increased by 19% in the last five years. That equates to an average annual increase of 3.5%. Although that may beat general measures of inflation, income investors typically expect a higher rate of increase.

Last year, Shell paid $1.72 of dividends. At today’s share price, that equates to a yield of 4.9%.

Dividends future

If Shell pays four equally sized dividends for 2013, the total payout for this year will be $1.80 — a 4.7% increase on 2012.

However, a distribution of just $1.82 is forecast for 2014, a rise of just 1% on my 2013 expectation.

Of more concern is Shell’s ability to pay dividends from the profits that the company is generating. Back in 2007, Shell paid $1.44 of dividends from $4.74 of earnings — the dividend was covered 3.5 times. Forecasts are for cover of 2.0 times this year.

Surprisingly for Shell, analysts earnings forecasts have become unreliable. This time last year, the consensus expectation was for 2013 EPS of $4.47. Today, that figure is just $3.57. Unreliable earnings are never good for a share’s rating. The change in perceptions may go some way to explaining Shell’s forecast P/E of 9.8 versus 14.6 for the wider market.

Shell vs the rest

According to my data, six FTSE 100 shares are forecast to yield more than Shell this year. Shell has better dividend cover than all of these but one. It can be argued whether Shell is the best income stock in the FTSE 100 but it is certainly a contender.

The post Is Royal Dutch Shell Plc The Best Dividend Share In The FTSE 100? appeared first on The Motley Fool UK.

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> David does not own shares in any of the companies mentioned.

Barclays

At the end of October, Barclays (LSE: BARC)(NYSE: BCS.US) reported profits for the first nine months of the year of £2.8bn. Basic earnings per share for the period hit 21.9p. The quarterly dividend was held at 1p.

Barclays shares are priced at 250p today. That seems cheap if the company can earn almost 22p per share in just nine months. However, in September, Barclays was forced into a 1:4 rights issue. While this will shore up the company’s balance sheet, it will also dilute earnings.

The market is also worried over the size of fines that Barclays may have to face for LIBOR fixing, exchange rate manipulation and interest rate swap miselling.

To reflect all of this, the consensus of analyst profit expectations has been in sharp decline since July. Back then, earnings per share (EPS) of 33.5p was expected for the full year. Today, that figure is 26p. An average of 30.4p is expected for 2014.

A big dividend rise is also forecast for next year. That puts the shares on a 2014 P/E of 8.2, with an expected yield of 4.3%.

Prudential

The recent trading statement from insurance giant Prudential (LSE: PRU)(NYSE: PUK.US) trumpeted strong profit growth in Asia and fund inflows for its asset management subsidiary M&G.

While not without ups and downs, Prudential’s last five years have been far less eventful than Barclays’. As ever, this is best demonstrated in the insurance giant’s dividend record. This has shown an average annual increase of 10.2%. The payout from the Pru has been increased every year since 2005.

The steady growth of the business is reflected in the company’s share price progression. While Barclays is up 57% in those five years, the share price of Prudential has more than trebled.

Prudential’s success has seen the shares earn a P/E of 15.7 times forecast earnings for 2013. That is surprisingly inexpensive given how well the company has traded. After all, the average FTSE 100 stock is priced on a forecast P/E of 14.6 times earnings.

Verdict

Prudential is a top company but if the new boss at Barclays can turn things around, I expect greater upside from the bank’s shares. For that reason, I will be sticking with Barclays.

The post Should I Sell Barclays PLC And Buy Prudential plc? appeared first on The Motley Fool UK.

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> David owns shares in Barclays but none of the other companies mentioned.