Build A Blue-Chip Portfolio With A 6% Yield

Published in Investing on 26 November 2012

Put these FTSE 100 stocks together for a diverse, high-yield portfolio.

The FTSE 100 (UKX) has fallen recently. Yet many blue-chip shares are increasing shareholder dividends. The result is that it is now incredibly easy to construct a diverse, high yield, large-cap portfolio.

Remember, that dividends can be held, increased, decreased or even dropped entirely.

I have tried to build a diverse portfolio with shares coming from a range of sectors.

NamePrice (p)Yield (forecast, %)P/E (forecast)Market cap (£m)
RSA Insurance1158.3711.63,960
Vodafone1597.4310.278,180
AstraZeneca28916.267.535,560
BAE Systems3106.257.710,090
SSE14065.9712.313,420
BP4365.477.382,890
British Land5355.0217.84,710
HSBC6264.3810.9114,010
J Sainsbury3344.9511.36,240
National Grid7115.7912.925,740

Data from Stockopedia

Four shares stood out in particular.

1) RSA

RSA (LSE: RSA) is the company behind the MORE TH>N insurance brand.

Often when a company has been paying a high dividend, that payout has not been rising or has little prospect of increasing in the future.

At RSA, however, the dividend has been increased every year since 2006. This is thanks to the level of profitability that the company was able to maintain throughout the financial crisis.

For 2012, brokers are expecting 11.8p of earnings per share (EPS) and a dividend of 9.4p. Currently, a 20% decline in profits would mean the RSA dividend would have to be paid in part from borrowings or reserves. Normally, investors want to see dividends better covered by profits.

Two things mean I'm not especially worried about the RSA payout. First, the company has managed to continue increasing its dividend through what must have been some very tough years. Second, RSA is forecast to deliver substantial profits growth in 2013. This would lead to a far higher level of dividend cover.

For 2013, analysts estimate that RSA will earn 13.4p per share and pay a 9.5p dividend.

2) British Land

British Land (LSE: BLND) is the property company behind some of the best known commercial properties in the UK.

British Land is owner of Sheffield's Meadowhall Shopping Centre and the site of Debenhams on Oxford Street. Income from British Land's asset portfolio underpins cashflows to investors.

British Land is not a normal trading company. It is incorporated as a real-estate investment trust (REIT). This is the normal status of UK-listed property companies. This means that a different set of accounting rules and dividend policy applies.

The gist of this is that a large proportion of profits from property rental must be paid out. The result is dividends that are almost as large as reported earnings.

For the year ending March 2012, the British Land dividend rose to 26.1p. This was the first increase from the company since 2009.

British Land pays shareholders four dividends a year. The first two dividends of the new year were 6.6p per share each, up from 6.5p the previous year. Analysts expect the company will pay 26.5p of dividends over the course of the full year.

3) BP

Since the disaster in the Gulf of Mexico, BP (LSE: BP) has been raising its dividend fast.

From 15 cents (BP reports in US dollars) in 2010, BP paid 29 cents in 2011. Analysts expect 38 cents of dividend for 2012, rising to 43 cents in 2013.

This would still leave BP paying less than it did before the Macondo spill. In 2009, BP paid its shareholders a massive 59 cents for the year 2009. This would equate to a huge 8.4% yield at today's share price.

The last few months have been eventful for BP. The company has announced three key agreements. First, BP has agreed a $4.5bn fine with the US authorities over the sequence of events that led to 11 deaths in the Macondo incident. BP also announced a clean divorce from former partners in its Russian TNK-BP joint venture. Thirdly, BP finalised terms for a new collaboration with Russian national oil company, Rosneft.

This all means that the investment case now contains materially less risk. If the Rosneft deal proves to be as beneficial as the TNK-BP venture was, earnings could recover to pre-Macondo levels. That would only be good for the dividend.

4) National Grid

National Grid (LSE: NG) runs electricity and gas distribution throughout the UK. The company also owns 50% of BritNed, a joint venture with Dutch firm TenneT. BritNed is a 1,000MW capacity power link between Britain and the Netherlands.

Running power infrastructure gives National Grid access to secure and predictable cashflows. This means that the company can sustain large debts and pay a big dividend.

That dividend was increased every year from 1997 to 2010. Although the payout was cut 5% in 2011 it has since increased again. Analysts expect the dividend to rise for the next two years, taking the 2013 full payout to 41.6p. Earnings growth is expected to outstrip this, meaning dividend cover will increase.

National Grid trades on 14.4 times its most recent annual profits. With the forecast growth, this falls 12.9 times earnings in 2013 and 12.8 times expectations for 2014.

If you are looking to grow your wealth by investing in high-yielding blue-chips, then check out this free report from The Motley Fool. "8 Shares Held By Britain's Super Investor" showcases big investments made by Neil Woodford, one of the world's best investors. Mr Woodford is a money-making machine. Click here to get the report delivered to your inbox immediately.

> David owns shares in Vodafone, but not other share mentioned. The Motley Fool has recommended shares in Vodafone.

Share & subscribe

Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

jackdaww 26 Nov 2012 , 2:24pm

i hold mostly high yield shares but not these - except vodafone.

brightncheerful 26 Nov 2012 , 6:31pm

6% without the likelihood of capital appreciation isn't much to shout about. A higher yield can often be symptomatic of a company that's gone ex-growth.

That could mean a trading stock, how many PI's have got the stomach and skills for that?

apprenticeDRL 26 Nov 2012 , 10:10pm

I hold RSA, BP, BAE and Sainsbury's from this list.

I prefer Centrica as my utilities stock. perhaps Tesco could be added to the list?

bnc - do you really think BP has no room for growth?

I would agree with your sentiment for a lot on this list, but personally think BP, BAE and RSA have room for share price progression.

Time will tell

IDPickering 27 Nov 2012 , 2:12am

I hold all of the shares listed, and shall continue to do, and reinvest those juicy dividends.

itsallaguess 27 Nov 2012 , 4:23pm


I've posted over on the HYP board with some F/Cast Dividend-Cover figures for the above portfolio :-

http://boards.fool.co.uk/lots-of-forecasts-no-mention-of-pb-gearing-or-12693835.aspx

Cheers,

Itsallaguess

hanmat2000 28 Nov 2012 , 12:35pm

I have 8 out of these 10 in my portfolio and intend adding a ninth next month. The one I haven't looked into yet is British Land. Will take a closer look at that one.

Join the conversation

Please take note - some tags have changed.

Line breaks are converted automatically.

You may use the following tags in your post: [b]bolded text[/b], [i]italicised text[/i]. All other tags will be removed from your post.

If you want to add a link, please ensure you type it as http://www.fool.co.uk as opposed to www.fool.co.uk.

Hello stranger

To add your own comment, please login.

Not yet registered? Register now.