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A Blue-Chip Starter Portfolio: GlaxoSmithKline plc, BHP Billiton plc And Rolls-Royce Holding PLC

Every quarter I take a look at the largest FTSE 100 companies in each of the index’s 10 industries to see how they shape up as a potential ‘starter’ portfolio.

The table below shows the 10 industry heavyweights and their current valuations based on forecast 12-month price-to-earnings (P/E) ratios and dividend yields.

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Company Industry Recent share price (p) P/E Yield (%)
ARM Holdings Technology 852 31.4 0.9
BHP Billiton Basic Materials 1,660 11.5 4.7
British American Tobacco Consumer Goods 3,435 15.3 4.5
GlaxoSmithKline Health Care 1,393 14.2 6.0
HSBC Holdings Financials 631 11.1 5.3
National Grid Utilities 877 15.6 5.0
Rolls-Royce Industrials 936 13.8 2.7
Royal Dutch Shell Oil & Gas 2,360 10.0 5.0
WPP Consumer Services 1,172 13.1 3.5
Vodafone Telecommunications 206 30.6 5.6

Excluding tech share ARM Holdings, the companies have an average P/E of 15.0 and an average dividend yield of 4.7%. The table below shows how the current ratings compare with those of the past.

Date P/E Yield (%)
October 2014 15.0 4.7
July 2014 14.8 4.7
April 2014 13.6 4.6
January 2014 13.6 4.5
October 2013 12.2 4.7
July 2013 11.8 4.7
April 2013 12.3 4.6
January 2013 11.4 4.9
October 2012 11.1 5.0
July 2012 10.7 5.0
October 2011 9.8 5.2

As you can see, the group P/E rating of 15.0 is at its highest since I’ve been tracking the shares; and is moving towards expensive, on the basis that the FTSE 100 long-term average is around 14.

However, it’s worth noting that the P/E of Vodafone has been unusually high since the sale of its stake in Verizon Wireless, and, as in the last quarter, is having a significant effect on the group average.

Regular readers will also notice that Tesco has fallen so heavily from grace that it is no longer the biggest company in the Consumer Services industry. This industry includes media firms and leisure & travel companies as well as retailers, and advertising giant WPP has replaced Tesco as the Consumer Services heavyweight.

Big pharma group GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) is the first company I’d like to highlight for you this quarter. And mainly for that eye-catching 6% yield. This is the highest Glaxo’s yield has been in any of my quarterly reviews. The next best available was 5.8%, when I last spotlighted the company as long ago as January 2013 at a price of 1,346p. In between times the shares have been as high as 1,648p and the yield as low as 4.6%, so Glaxo is now back in serious high-income territory.

Anglo-Australian mining behemoth BHP Billiton (LSE: BLT) (NYSE: BBL.US) is another one where the dividend catches the eye. This in an industry that isn’t historically renowned for offering decent yields. I last highlighted BHP Billiton for you in July 2013 when the company was offering a yield of 4.8% at a share price of 1,682p. The shares have traded higher since then, squeezing down the yield, but have lately dropped back and the income on offer is now up to 4.7%.

Aerospace and defence giant Rolls-Royce (LSE:RR) doesn’t offer a high yield, but the P/E rating is currently attractive. In my quarterly reviews, I have to go back as far as January 2013 to find the company’s shares under 1,000p and the P/E under 14. To put the current price of 936p, P/E of 13.8 and yield of 2.7% into context, the equivalent figures in January this year were 1,275p, 17.6 and 2.0%.

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G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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