The Motley Fool

Should I Invest In These 5 FTSE 100 Shares?

To me, capital growth and dividend income are equally important. Together, they provide the total return from any share investment and, as you might expect, my aim is to invest in companies that can beat the total return delivered by the wider market.

To put that aim into perspective, the FTSE 100 has provided investors with a total return of around 3% per annum since January 2008.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Quality and value

If my investments are to outperform, I need to back companies that score well on several quality indicators and buy at prices that offer decent value.

So this series aims to identify appealing FTSE 100 investment opportunities and during recent weeks I’ve looked at AstraZeneca (LSE: AZN), Johnson Matthey (LSE: JMAT), Smith & Nephew (LSE: SN), Pearson (LSE: PSON) and BAE Systems (LSE: BA). This is how they scored on my total-return-potential indicators (each score in the table is out of a maximum of 5):

Share AstraZeneca Johnson
Matthey
Smith &
Nephew
Pearson BAE 
Dividend cover 4 4 4 3 3
Borrowings 4 3 4 3 5
Growth 1 2 4 2 2
Price to earnings 2 2 2 4 2
Outlook 2 3 3 3 3
Total (out of 25) 13 14 17 15 15

Pharmaceuticals

A 9% rise in emerging-markets revenue, which accounts for around 21% of sales, wasn’t enough to offset AstraZeneca’s overall 12% revenue decline and 21% fall in core operating profit during the first quarter. The pain is largely due to increased competition since several patents timed-out on some of the firm’s best-selling drugs. Targeted in-house research & development, and an active acquisition programme, are both strategies aimed at restoring a product-development pipeline that can generate further growth. There’s a tempting forward dividend yield of around 5.7% available for those willing to wait for recovery, but I’m happy to watch for the time being.

Platinum-focused products

A poor performance in Johnson Matthey’s Precious Metal Products Division led to declining figures in 2012 after several periods of steady revenue and earnings growth. However, the directors expect tighter vehicle emissions legislation and demand for process technologies’ products, especially in China, to boost sales of the firm’s catalysts, components and chemical processes over the next two or three years. Such expectations seem built in to the share price, so I’m content to watch.

Medical devices

The solid characteristics of Smith & Nephew’s business led to a 50% upwards rebasing of the dividend last year and the forward yield is now running at around 2.5%. There’s also a share buy-back programme to cheer investors. Such moves make me optimistic about the firm’s total-return prospects from here, as demand seems unlikely to wane for the company’s products, such as joint replacements for knees hips and shoulders; tools for minimally invasive surgery; advanced wound dressings; and nuts, bolts, plates and nails for trauma surgery. The firm’s attractions seem embraced in the valuation, so I’m watching for now.

Publishing

In recent news, Pearson and Bertelsmann have completed the merger of Pearson’s Penguin with Random House to create Penguin Random House, a joint venture in which Pearson owns 47%. However, the education sector delivers around 90% of Pearson’s ongoing operating profit. The directors are expecting a difficult 2013 with various issues contributing to headwinds, such as pressures on education budgets and college enrolment numbers, and a shift in the firm’s business model from print sales to digital subscriptions. A restructuring-spend of £150m is targeted for the year, although that investment should generate some on-going cost savings. I’m watching the firm and expect to find out more in the end-of-July update.

Aerospace and defence

BAE Systems supplies many of the world’s fighter planes, radar, attack missiles, warships and munitions, but continuing pressure on government defence budgets in the company’s biggest markets, the UK and the US, means the directors are expecting muted growth in underlying earnings during 2013. Despite such challenges, the firm made good progress with cash flow and debt-reduction during 2012, and the constant nature of the business makes me optimistic about the dividend’s ability to contribute steadily towards total investor returns. There’s an attractive-looking 5.3% forward yield on offer at the current share-price level, but potential lack of forward earnings growth makes me cautious. I’m watching.

What now?

In my search for decent on-going total returns, I’m also considering a new Motley Fool report prepared by our top analysts that highlights five shares with seemingly impregnable, moat-like financial characteristics. “5 Shares To Retire On”, presents five shares that deserve consideration for any investor aiming to build wealth in the long run. For a limited period, the report is free. To download your copy now, click here.

> Kevin does not own any of the shares mentioned. The Motley Fool owns shares in Smith & Nephew.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.