To me, capital growth and dividend income are equally important. Together, they provide the total return from any share investment and, as you might expect, my aim is to invest in companies that can beat the total return delivered by the wider market.
To put that aim into perspective, the FTSE 100 has provided investors with a total return of around 3% per annum since January 2008.
Quality and value
If my investments are to outperform, I need to back companies that score well on several quality indicators and buy at prices that offer decent value.
So this series aims to identify appealing FTSE 100 investment opportunities and during recent weeks I’ve looked at Barclays (LSE: BARC), Prudential (LSE: PRU), Antofagasta (LSE: ANTO), Reed Elsevier (LSE: REL) and Land Securities Group (LSE: LAND). This is how they scored on my total-return-potential indicators (each score in the table is out of a maximum of 5):
| Â | Barclays | Prudential | Antofagasta | Reed Elsevier |
Land Securities |
|---|---|---|---|---|---|
| Dividend cover | 3 | 4 | 5 | 4 | 5 |
| Borrowings | 2 | 4 | 5 | 3 | 4 |
| Growth | 2 | 2 | 5 | 4 | 4 |
| Price to earnings | 4 | 4 | 1 | 2 | 3 |
| Outlook | 4 | 4 | 3 | 3 | 4 |
| Total (out of 25) | 15 | 18 | 19 | 16 | 20 |
Banking
Barclays posted a 28% slide in earnings per share with its half-year results, compared to a year ago. The firm also revealed plans to tap investors for a net £5.8 billion via an underwritten Rights Issue, as one of several actions to conform to the Prudential Regulation Authority’s new 3% Leverage Ratio target, a figure that currently leaves the bank with a capital shortfall of £12.8 billion. Restructuring continues to gain depth, width and clarity for shareholders of Barclays, as the new funding arrangement piles on top of £1 billion of restructuring expenditure. I’m still keen on the shares, though!
Insurance
Prudential has high hopes for its Asian activities, a region where it reckons people have yet to mass-adopt insurance products as they have in western markets, despite the existence of a rapidly growing, increasingly urbanised, and affluent middle class. Last year the firm gained 32% of its profits from Asia, so fast growth there is an interesting proposition for shareholders. I’m optimistic about the firm’s total-return prospects from here and likely to buy the shares.
Mining
Copper delivered 82% of Antofagasta’s revenue last year. There was also 7% from gold, 5% from molybdenum and 1% from silver, with the remaining 5% from other activities. A recent steady-as-she-goes production report is encouraging, but what are commodity prices going to do? You have to take a view on that to make sense of an investment, I reckon. I’m neutral about the firm’s total-return prospects from here, so will continue to watch.
Specialist information publishing
With its recent interim-results report, Reed Elsevier displayed gentle upwards progress with a 2% increase in revenue and a 6% increase in underlying operating profit. The firm focuses on a professional information provision, with North America providing 51% of revenue last year, Europe, 23%, the UK, 16%, and the remainder from the rest of the world. I have the company on my watch list, which suits for the time being.
Commercial property
Commercial property Real Estate Investment Trust (REIT), Land Securities, recently reported solid progress on its letting activities as demand continues to increase. The firm runs a portfolio of offices, shops, shopping centres, hotels, leisure assets and retail warehouse properties. Around 53% of such office and retail properties are in London. By investing in property and improving it, the company aims to generate value by attracting customers on higher rents, which also helps to lift the valuation of the assets. The shares trade above the firm’s approximately 903p diluted net asset value per share figure, and I’m happy to watch.
What now?
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> Kevin does not own any of the shares mentioned.