HSBC
HSBC (LSE: HSBA) (NYSE: HBC.US) is the biggest of the UK’s listed banks. With diverse operations and a strong balance sheet, HSBC is widely considered to be the most secure of the lot. Stock market recovery and an improvement in economic activity are likely to be inspiring analysts to recommend that HSBC stock is bought.
Using the estimates being issued by those same analysts, I agree that HSBC is cheap today. According to the average of forecasts in issue, HSBC will report earnings per share (EPS) this year of $0.99. This is expected to increase 10% next year. That gives a P/E for 2013 of 10.8, falling to 9.8 times next year’s earnings.
At today’s price, HSBC is forecast to pay a dividend of 5.0%.
Diageo
Diageo (LSE: DGE) (NYSE: DEO.US) paid 10.8p of dividends for 1998. Since then, the payout has been increased every year, reaching 43.5p last year. In the last five years, Diageo has grown its EPS at an average rate of 14.0% a year. Dividend growth has slowed in recent years and was ‘just’ 5.9% a year on average in the same period. This record still puts Diageo among the top quarter of all blue-chip shares.
Given how phenomenally successful Diageo has been, it is easy to see why analysts are keen to recommend that the shares are bought.
103.5p of EPS is expected this year, an 11.4% increase on last year’s number. This is expected to be followed by another rise of 10.1% for 2014.
Babcock International
Babcock International (LSE: BAB)’s growth record in the last five years is even more impressive than Diageo’s. The engineering services specialist has grown EPS over the last five years at an average rate of 14.3% per annum. In that time, dividends have increased year-on-year by an average of 15.5% a year.
Fortunately for shareholders, there is no apparent sign of that growth stopping. EPS is forecast to increase 23% this year to 69p per share. The dividend is expected to advance 16%. More growth is then expected for the year after. This puts the shares on a 2014 P/E of 16.2, with a forecast yield of 2.5%.
While there can be no doubting Babcock’s quality, the yield is rather light. For our analysts’ best FTSE 100 dividend pick, check out the Motley Fool report “The Motley Fool’s Top Income Share For 2013”. This report is 100% free and will be delivered to your inbox immediately. Just click here to get your copy today.
> David does not own shares in any of the above companies.