Building a portfolio from scratch can be a daunting prospect. So to help, here are five top picksthathave been selected for their market-leading qualities.
Building the foundations
Every portfolio should be builton the foundations of several well-established large-cap stocks, to provide both stability and a regular income.British American Tobacco(LSE: BATS) andSABMiller(LSE: SAB) are two perfect foundation stocks.
Both British American and SAB have established, defensive businesses that have proven themselves over time. Whats more, these two companies have put shareholder returns at the top of their agendas. As a result, British American and SAB have outperformed the FTSE 100 by 14% and 11% per annum respectively for the past 15 years including dividends. Youd be hard pressed to find returns like these elsewhere.
Unfortunately, with such an impressive record of growth behind them, British American and SAB dont come cheap. British American and SAB trade at forward P/Es of 17.4 and 22.9 respectively and yield 4.3% and 2.2%. As these companieshaveproven that they are a safe haven in stormy waters, it could be worth paying the high price.
Income and growth
With a backbone of defensive stocks in place, income is next on the agenda. Tate & Lyle(LSE: TATE) andAdmiral Group(LSE: ADM) are two of the best income stocks around.
Admiral has paid outa total of 1.1bn to investors or around 90% of net income generated to investors via dividend during the past five years.
This trend is set to continue into 2015 and 2016. Analysts expect Admirals dividend payouts to total 89.5p per share for 2015 and 93.8p for 2016, equal to a yield of 6.1% and 6.4% respectively.The company currently trades at a forward P/E of 15.8. Including dividends Admirals shares have returned 19.2% per annum for the past decade.
Tates returns are not as impressive as Admirals. However, the company currently supports a dividend yield of 5.5%, and thepayout is set to rise in line with inflation for the next two years.
Tates earnings are expected to fall by 11% this year as the company has been struggling with some supply-chain issues. These issues are not expected to last into 2016 and City analysts believe that the groups earnings will return to growth next year. Tate currently trades at a forward P/E of 14.9 and 2016 P/E of 13.6.
Rapid growth
My final share for success isDixons Carphone(LSE: DC).
Dixons is a growth stock. After merging with Carphone Warehouse last year, Dixons earnings have surged a 46% over the past year. Management is planning to openfour new stores each week across Dixons international footprint. Based on these plans for growth,City analysts expect Dixons earnings per share to expand at a compound annual rate of 8% through to 2017.
Dixons currently trades at a forward P/E of 16.3 and is set to support a dividend yield of 2% this year.
However, as Dixons has a number of growth initiatives underway Im inclined to believe that the companys growth will surpass City expectations.
For example, the company is already ahead of its own target to achieve merger synergies of 80m by 2016/17, has launched a new mobile networkand signed a deal with US telecoms firm Sprint, whichcould eventually see it open 500 stores in the US. With all these plans in place, Dixons future growthcould easily exceedexpectations.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.