GlaxoSmithKline
In the last two months, forecasts for profits at GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) have increased from 114p per share to 116p. Combined with the recent share price falls, the stock now looks a combined value-income play.
From the current forecasts, GlaxoSmithKline is on a 2013 price-to-earnings (P/E) ratio of 13.6, falling to 12.3 times the 2014 estimate. Dividends for the year are forecast to hit 77.7p per share, equal to a 4.9% yield at today’s share price. The payout is expected to increase further for 2014, rising to 81.7p — a 5.2% yield.
With the shares down 9% in the last month, Glaxo looks a great opportunity to pick up a blue-chip share with a well-covered high yield.
Schroders
A fund management business will always be a geared play on the health of the financial markets. As equities surged in the period leading up to their May peak, analysts rushed to upgrade Schroders (LSE: SDR). In December, the City was expecting 111.6p of earnings per share (EPS) from Schroders in 2013. By May, this had reached 127.5p.
Despite the recent market setback, I still expect that the next year will see companies like Schroders experience a significant increase in demand.
However, much of that now seems to be in the price. Schroders shares are available today on 16 times 2013 forecasts, with a prospective yield of 2.5%. To justify today’s price, Schroders must meet these expectations. That leaves new buyers exposed to any future deterioration in market conditions.
Smiths Group
On the basic fundamentals, Smiths Group (LSE: SMIN) is the typical FTSE 100 share. The average forward P/E ratio for a UK blue chip is 13. Smiths trades on 13.1 times 2013 forecasts. The average expected yield from a FTSE 100 share is 3.5%. Smiths is expected to pay 3.2%.
The broad range of end markets served by Smiths has protected the business from the worst of the last five years. The oil-and-gas-facing John Crane business made a particularly strong contribution during that period. This helped ensure that the group was able to avoid losses and maintain/increase its shareholder dividend throughout.
A P/E of around 15 might be fairer, given how resilient Smiths Group has proved itself to be.
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> David does not own shares in any of the above companies.