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 (%)|
|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|
|Royal Dutch Shell (LSE: RDSB) (NYSE: RDS-B.US)||Oil & Gas||2,233||11.4||5.4|
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.
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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