Pharmaceuticals like AstraZeneca (LSE: AZN) (NYSE: AZN.US) are frequently steady performers. That is because their sales are rarely influenced by wider economic conditions.
AstraZeneca uses the relative safety of its income stream to pay a large dividend. As such, the company is regarded as one of the best income stocks on the market today.
However, earnings at AstraZeneca have been falling in recent years. Analysts have expressed some concerns over the company’s ability to develop new drugs and treatments.
A 5% earnings fall is forecast for 2013, with a 6% dip expected in 2014.
That puts the shares on a 2014 price-to-earnings (P/E) ratio of 10.1, with an anticipated yield of 5.7%. That’s a significant valuation discount to the average FTSE 100 share.
Utilities have even better visibility of future sales than the pharmaceuticals. The result is that their shares tend to avoid market extremes.
A large, dependable dividend also helps.
In the last five years, SSE (LSE: SSE) has increased its payout every year at an average rate of 6.8%. A dividend of 87.6p is forecast for 2013, rising to 91.5p next year.
At today’s price, that’s a forecast yield of 5.4%, rising to 5.6% in 2014.
Earnings are expected to increase even faster. That puts the shares on a 2013 P/E of 14, falling to 13 next year.
The shares are 15% ahead this year, suggesting that any future rises may be limited.
Outsourcing contractor G4S (LSE: GFS) is one of the most interesting opportunities in the FTSE 100 today.
Before the company’s failure to provide security guards for the London Olympics, G4S stock was loved by the investment community. After years of huge growth, the shares were frequently rated at a substantial premium to the rest of the market.
The Olympic fiasco, a profit warning in May and now a potential over-billing scandal has seen the shares lose fans fast. Today, G4S shares are trading on a 2013 P/E of 10.5, with an expected yield of 4.3%.
The G4S brand has taken a battering in the last year but if the company can win back the market’s love, then I expect the shares to rise significantly.
One of the world’s top investors has recently been backing G4S and AstraZeneca. Professional fund manager Neil Woodford has been beating the market for decades with his dividend income fund. For more of Mr Woodford’s top picks, get the free Motley Fool report “8 Shares Held By Britain’s Super Investor”. This report is totally free. Click here to get your copy today.
> David does not own shares in any of the companies mentioned.
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