Every quarter I take a look at the largest FTSE 100 companies in each of the indexs 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.
| Company | Industry | Recent share price (p) | P/E | Yield (%) |
| ARM Holdings | Technology | 997 | 34.3 | 0.8 |
| BHP Billiton (LSE: BLT) (NYSE: BBL.US) | Basic Materials | 1,389 | 11.0 | 5.8 |
| British American Tobacco | Consumer Goods | 3,500 | 15.8 | 4.4 |
| GlaxoSmithKline | Health Care | 1,376 | 14.9 | 5.9 |
| HSBC Holdings | Financials | 609 | 10.3 | 5.7 |
| National Grid | Utilities | 918 | 15.9 | 4.9 |
| Rolls-Royce (LSE:RR) | Industrials | 870 | 14.0 | 2.8 |
| Royal Dutch Shell (LSE: RDSB) (NYSE: RDS-B.US) | Oil & Gas | 2,233 | 11.4 | 5.4 |
| Vodafone | Telecommunications | 223 | 34.3 | 5.2 |
| WPP | Consumer Services | 1,345 | 14.5 | 3.1 |
Excluding tech share ARM Holdings, the companies have an average P/E of 15.8 and an average dividend yield of 4.8%. The table below shows how the current ratings compare with those of the past.
| P/E | Yield (%) | |
| January 2015 | 15.8 | 4.8 |
| 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 15.8 is at its highest since Ive been tracking the shares. This time last year the P/E was 13.6, and the year before that it was 11.4. As a group, our industry heavyweights are now starting to look a tad expensive, based on the FTSE 100 long-term average P/E of 14.
However, within the group there are some attractive P/Es. Also, dividend forecasts have held up better than earnings forecasts, meaning the collective yield of 4.8% is as high as its been since January 2013.
BHP Billiton is the first company Id like to highlight for you this quarter. The mining titan trades on an attractive P/E of 11 and offers a mammoth 5.8% dividend yield. At this time two years ago Billitons shares were over 50% higher than today. The P/E was 12.8 and the yield was just 3.6%. Weak metals prices are behind the companys current rating. For long-term investors now could be a good opportunity to buy.
Oil giant Royal Dutch Shell is also currently labouring in an unfavourable macro-environment. The shares have been depressed by a falling oil price in recent months. Shell now trades on a P/E of 11.4 and offers a juicy dividend yield of 5.4%. Again, this looks like a decent opportunity for long-term investors to buy into a top blue-chip behemoth.
Aerospace and defence giant Rolls-Royce, with its massive order book of long-term contracts, is more highly valued than natural resources firms by investors. At this time last year Rolls-Royces shares were 45% higher than today. The P/E was 17.6 and the dividend yield was 2%. Were now looking at a P/E of 14 and a 2.8% yield. A number of factors, including Russian trade sanctions, have hit the short-term outlook and taken the shine off the shares. But again, far-sighted investors could benefit from the markets myopia.
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G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended shares in GSK, HSBC and ARM. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
