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Income: stick or twist on blue chips?
by James Phillipps on Mar 28, 2012 at 12:13
High yielding blue chips have been the consensus call over the past year and are widely expected to continue their strong run as investors remain income starved and cautious.
But some valuations are becoming stretched and looking at when to build cyclicality into a portfolio looks set to be one of the key calls for 2012.
Backing blue chip dividend stocks certainly proved a winning strategy over the last year. Analysis from Indxis, the specialist index provider, last week showed that its UK Dividend Achievers index produced a capital return of 5.32% in the 12 months to the end of January compared to a loss of -3.09% from the FTSE 100.
The UK Dividend Achievers is devised in a similar way to the popular S&P 500 Dividend Aristocrats index in the US.
It uses a market cap weighted methodology focused on stocks that are UK listed, and only selects constituent companies that have grown their dividends in each of the last five calendar years. The five largest stocks within the index are Vodafone, British American Tobacco, AstraZeneca, BHP Billiton and BG Group.
Over that 12-month period, the likes of British American Tobacco, up 27.5%, and AstraZeneca, up 0.79%, surged ahead of the index, while other fellow dividend heavyweights, such as GlaxoSmithKline and Imperial Tobacco, also massively outperformed, up 24.94% and 27.24%, respectively.
‘Investors continue to tread carefully when it comes to equity investments, even though dividends can provide a valuable supplement to income in tough economic times,’ says Indxis director Alan Price.
‘It is edifying to see that some of the largest and most trusted brands in the UK feature among the most consistent dividend-paying stocks.
'In times like these, it is crucial to trust in those companies that have consistently increased their dividends over five years or more when investing for income, instead of chasing large one-off payments that are often used to hide a deeper malaise within a company.’
Room to grow or fully valued?
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