5 Shares Santa Claus Might Buy

Published in Investing on 24 December 2012

Which stocks would Father Christmas stuff in his stocking?

It's a busy time of year if you are Santa Claus. Not only has he got to do the shopping, there's deliveries to see to as well.

So, I wonder which companies Father Christmas might invest in. I've had a look through the FTSE 100 (UKX) to see what might take his fancy. Here are the five that might just make his wishlist.

CompanyPrice (p)P/E (forecast)Yield (forecast, %)Market cap (£m)
BP (LSE: BP)4287.35.581,600
Diageo (LSE: DGE)1,29017.82.645,860
GlaxoSmithKline (LSE: GSK)1,36112.05.566,780
Rolls-Royce (LSE: RR)88015.32.316,260
Tesco (LSE: TSCO)34210.74.327,520

Data from Stockopedia

1) Tesco

Santa needs to keep his livestock well fed; he wouldn't get far without his reindeer. Rudolph loves a carrot and I am sure his boss must be a customer of Tesco, the company that sells more carrots than any other in the UK.

Tesco's growth in the last 20 years has seen it become one of the UK's biggest companies. The shares have been a great investment, too. Dividends enjoyed by Tesco shareholders have been increased every year for the last 27 years -- that's a record for a FTSE 100 company.

The shares have rallied recently and are ahead 8.4% in the last month alone. Tesco stock comes with an expected yield of 4.3%.

2) GlaxoSmithKline

Year after year, Santa keeps on delivering. He can't be getting any younger, though, and at the very least, his joints must be starting to creak.

Pharmaceutical giant GlaxoSmithKline (Glaxo) has been making millions dishing up drugs to an ever-aging population. Glaxo uses it mega-profits to pay one of the FTSE 100's top dividends.

The Glaxo payout has been increasing year-on-year since 1998. This year, it is expected to hit 74.2p per share, rising to 77.5p next year.

Earnings growth is expected to moderate, with just a 2.1% rise expected for 2012 before another 5.3% rise the year after.

Some investors have concerns about Glaxo's ability to continue growing earnings in a world where governments are starting to take a closer look at healthcare spending. That probably would not deter Santa. He'll still be around, no matter how tough austerity gets.

3) BP

How does Santa fuel his fleet? If I were him, I would want a reliable, global supplier onboard -- and BP fits the bill perfectly. The company also has significant merits as an investment.

I've recently been thinking of BP as one of the best recovery plays in the FTSE 100. Step by step, BP is putting the costs of the Gulf of Mexico disaster behind it. The company also now has a new Russian partner, state company Rosneft.

Before the Macondo oil spill, BP paid its shareholders dividends of $0.57 for the year. Today, the expected dividend is not even as much as the company paid in 2006. Despite this, the shares still trade on an expected yield of 5.5%. That's how cheap the shares are right now.

4) Rolls-Royce

Rolls-Royce is the world's leading supplier of jet engines. Just what Mr Claus needs to power his sleigh.

Rolls-Royce has been increasing its shareholder dividend every year since 2006. Better still, it has not been shy with those dividend increases: the average annual rise in that time has been 12.8% a year.

There are expectations that the payout will continue rising at a similar rate for the next two years. This puts the shares on an estimated yield for 2012 of 2.3%, rising to 2.5% in 2013.

That dividend is well covered by expected earnings. Analysts forecast that Rolls-Royce will deliver a 25.8% earnings per share (EPS) increase for the full year 2012, followed by a 12.3% increase on that figure in 2013.

5) Diageo

We know that Santa loves a tipple. We leave a sherry out for him every year and he never knocks it back.

One of the FTSE 100's most successful companies in recent years has been Diageo. In the last five years, the shares are up 73.2%. In that time, dividends have been increased, on average, 5.9% per annum. This has been surpassed by average annual EPS growth of 14.0%.

The good news doesn't end there. For the current financial year, Diageo is expected to report earnings growth of 10.7%. This is forecast to be followed by an 11.7% increase the year after. Similar progress in the dividend is also expected.

This puts the shares on a 2014 price-to-earnings (P/E) ratio of 15.9 times earnings. The expected yield for 2014 is 2.9%.

Diageo has proved how well investors can do by backing companies with strong brands in their product portfolio. One big fan of investing in big brand companies is US super-investor Warren Buffett. This billionaire has been delivering market-thrashing returns for decades. Mr Buffett has recently been buying shares in a UK-listed company himself. To find out which one and why, get the free Motley Fool report "The One UK Share Warren Buffett Loves". Start learning from this master investor today and click here to get the report delivered to your inbox immediately.

> David does not own any shares mentioned. The Motley Fool owns shares in Tesco.

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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.

eccyman 24 Dec 2012 , 10:28am

Sorry to be pedantic, but Diageo don't actually make any sherry :-)

ScottishPound 24 Dec 2012 , 1:34pm

Go on Santa, have a brandy.

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