This Week’s Top Blue-Chip Income Buy: Standard Chartered PLC

I’m always on the lookout for big FTSE 100 companies when they’re being offered in the market at an attractive valuation for dividend investors. A little higher yield at the time you buy can make a big difference to the growth of your income stream over the long term.

Right now, I reckon Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) is looking a great buy for income.

It’s like those films where the leading man is smitten by some exotic beauty, only to end up falling for ‘the girl-next-door’. Mr Market was once intoxicated by the eastern promise of Standard Chartered, but now it seems has plighted his troth to the UK high street.

The table below shows the share price performance of the Footsie’s ‘Big Five’ banks over the last two years, and how much of their business is done in the UK.

performance (%)
from UK (%)
Lloyds +192 94
Royal Bank of Scotland +51 58
Barclays +50 29
HSBC +29 <21
Standard Chartered -11 <12

A great opportunity right now

A number of companies, across a range of industries, have reported slowing growth, or even contraction, in Asia this year, among them BHP Billiton, Unilever and Tesco.

Standard Chartered joined the club, with a trading update last week that sent an already weak share price down to a 52-week low of 1,284p, 30% below a high of 1,838p achieved during March.

Nevertheless, management said that despite “the near term challenges … we remain confident in the strong underlying potential of our markets and of our competitive positioning”.

Analysts have been steadily downgrading their earnings forecasts for Standard Chartered over the past year, so naturally the share price has fallen. But here’s the thing for income investors: dividend forecasts (down 4%) have been cut nowhere near as far as earnings forecasts (down 14%), so Standard Chartered’s yield has been rising.

The analyst consensus of a 53.85p dividend for the current year gives a yield of 4.2% at the recent share-price low — a good percentage point above the market average. For next year, the analysts have penciled in a 9% dividend increase to 58.85p, lifting the prospective yield to 4.6%.

Like Standard Chartered’s management, I believe in the long-term potential of the Asian and African markets in which the company’s business has been embedded for over 150 years. I think the Mr Market’s near-term earnings concerns have pushed the dividend yield up high enough to make Standard Chartered a great buy for income investors right now.

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> G A Chester does not own any shares mentioned in this article.