Today I’ll be taking a closer look at telecoms giant Vodafone (LSE: VOD), supermarket chain Morrisons (LSE: MRW) and media firm Relx (LSE: REL). Should you be buying any of these Footsie favourites today?
Sky-high valuation
Mobile telecoms giant Vodafone has just ended another financial year but we won’t know exactly how it has done until next month. The shares have barely moved in the last 12 months, and this type of low volatility is typical of firms like Vodafone where investor focus leans towards income rather than growth.
So what about those dividends? Well, payouts are forecast at 11.48p for the financial year just ended, followed by 11.42p this year and 11.68p for fiscal 2018. This equates to prospective yields of 5.3%, 5.2% and 5.3% for the next three years.
That’s great news for income hunters, but the shares are expensive. Vodafone trades on a P/E ratio of 37 for the current year, falling to 29 for the year ending 31 March 2018. My worry with such a high P/E ratio is that any hiccups with the anticipated growth, could send the shares tumbling. I think there are cheaper ways to obtain 5% yields in the FTSE 100.
Unhealthy competition
Supermarket chain Morrisons has found it tough over the past few years with increasing competition from German low-price rivals Aldi and Lidl. Annual results revealed a 4.1% fall in revenue to £16.1bn, with underlying earnings per share slipping 29% to 7.8p.
Although there’s decent growth predicted for this year and next, I remain unconvinced. Competition from Aldi and Lidl isn’t going to go away and there are still traditional rivals Asda, Tesco and Sainsbury to contend with.
Furthermore the dividends yield, which are forecast below 3%, aren’t enough to attract income hunters, and won’t support the share price if the expected rebound fails to materialise. Move along, there’s nothing to see here!
Relx, don’t do it!
Anglo-Dutch publisher Relx changed its name from Reed Elsevier in February 2015, but that didn’t hinder its performance at all. Annual results for 2015 revealed yet another good year, with pre-tax profits up 6.5% to £1.31bn and an 8% rise in earnings. Incidentally, the new name is pronounced Rel-ex as in Rolex or Fedex, and not Relics!
The not-so-well-known FTSE 100 company has enjoyed steady growth every year since 2010, and has rewarded shareholders with rising dividends annually. Our friends in the City expect this to continue, with a 12% rise in earnings forecast for this year, and a further 7% pencilled-in for 2017. So the company is doing well, but do the shares offer good value?
Relx trades on 19 times forecast earnings for this year, falling to 18 for the year ending 31 December 2017. The P/E rating reflects the company’s continued growth, but unfortunately the shares aren’t priced to buy at the moment. And although the dividend payout is increasing, the yields of around 2.5% are still below average for the FTSE 100.
What next?
At the moment I can’t see any attractions with these three stocks. Although Vodafone and Relx are sound businesses, they’re just too pricey at the present time.
