Perhaps the most obvious type of moat relates to size. The bigger a company is, the more it will be able to take advantage of economies of scale. It can produce more for less and set prices lower than rivals while still making a profit. Large companies are also less likely to run into trouble when economic conditions deteriorate.

Consider Royal Dutch Shell (LSE: RDSB). With a market cap of £178bn, the oil major is by far the biggest business listed on the London Stock Exchange. While its fortunes will always depend on factors  it can’t control (like the price of oil), the sheer size of the business allows Shell to absorb the kind of shocks that would cripple many smaller companies. Even when Brent Crude plummeted to $28 last January, the company was able to cuts costs where necessary and preserve its much-prized dividend.

Brands are another form of moat. One example of a company having an enviable portfolio of ‘sticky’ labels would be £49bn cap consumer goods giant, Reckitt Benckiser (LSE: RB). Many shoppers wouldn’t dream of moving away from products such as Dettol, Cillit Bang and Air Wick, despite being aware that the differences between these and cheaper alternatives are fairly negligible. This gives earnings a degree of predictability, which also means that shares in the Slough-based business consistently trade on a price-to-earnings (P/E) ratio of at least 20. 

British American Tobacco (LSE: BATS) — in addition to owning some of the industry’s best known brands — also benefits from a different kind of moat in the form of new legislation. The growing opposition to smoking now makes it highly unlikely that new companies will attempt to enter the market, thereby allowing British American to retain and build on its dominant position.

A declining industry? Perhaps, but one that could still generate significant returns for shareholders over the medium term. On a P/E of 20, the world’s biggest tobacco company (having recently agreed to buy its biggest rival Reynolds for £40bn) still warrants a closer look.

Don’t get too comfortable

While all of the above present as relatively safe investments, the fact that a company has a perceived advantage shouldn’t be taken for granted. In contrast to those protecting Shell, Reckitt Benckiser and British American Tobacco, some moats can be narrow and/or short term.

Apple is one of the most valuable companies in the world. Given the relentless progress of technology however, it must continue to innovate to avoid becoming the next Blackberry. ASOS may be a favourite online destination for millions of young people but, thanks to the fickle nature of fashion, this may not always be the case; even more so if talented members of its board (another moat) decide to leave. And as the process for switching accounts becomes easier and quicker, banks and utilities can no longer rely on having the same customers for life as they once did. 

All this makes at least a degree of diversification vital when investing, even if your portfolio appears chock full of companies with economic moats. While this may reduce your returns over time, it’ll also allow you to sleep at night.

The post 3 FTSE 100 stocks with magnificent moats appeared first on The Twelfth Magpie.

More reading

• Double a state pension thanks to dividend shares? Here’s how it could be done
• How much second income am I aiming for with £20,000 in this superb FTSE 100 dividend star?
• Start buying shares with just £20 a week? Here’s how even that could help someone build wealth
• In the event of a stock market crash, is this one of the best stocks to consider buying?
• Here’s how putting £800 a month into a Stocks and Shares ISA from age 27 could fund a £2m retirement!

Paul Summers has no position in any shares mentioned. The Motley Fool UK has recommended Reckitt Benckiser and Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Sure of Shell

After years stuck in first gear, oil and gas giant Royal Dutch Shell (LSE: RDSB) finally showed some dash in 2016. It ended the year 51% higher, making it one of the top 10 performers on the index. It was helped by a strong end to the year, when it rose 11% in the last month alone, driven by the OPEC and non-OPEC production output freezes.

Shell’s recovery started earlier than that, with the share price climbing steadily in the wake of last January and February’s brutal sell-off. Shell was over-sold then, so has it been overbought today? Much of course depends on the price of oil, which continues to climb higher, and now tops $58 for a barrel of Brent crude, an 18-month high, after Kuwait cut production.

Royal opportunity

I’ve been sceptical about how far the oil recovery can run. There’s still a strong chance that OPEC and non-OPEC members could backslide on promises, while the US shale rig count continues to climb. The higher oil rises, the more wildcat drillers will enter the market. However, Shell is heavily exposed to the cleaner-burning liquid natural gas market, where the International Energy Agency predicts a bright future, with demand expected to rise 50% by 2040, against 12% for oil.

Shell currently trades on a forecast 15.5 times earnings, so it’s no longer cheap. The yield is still tempting at a forecast 6.3%, and safer by the day, as energy prices rise. The smooth integration of its BG Group purchase is also a feather in its cap. 

Glencore holding

One year ago, mining giant Glencore (LSE: GLEN) looked sunk. It posted an $8bn loss for 2015 as copper prices plunged on falling demand from China, forcing it to scrap its dividend while its debts piled up and investors raced for the lifeboats. Yet last year it was the second-best performing stock on the FTSE 100, rising a stonking 209%. Only fellow miner Anglo American, which also sank like a tonne of iron ore in 2015, did better, soaring an incredible 284%. 

So can Glencore repeat its spectacular trick? It almost certainly can’t, given that last year it was in full rebound mode. Today, it trades at a fairly sensible 14.4 times earnings. While Shell’s prospects depend on the price of oil, Glencore is hoping that demand from China will hold up. Both will also be crossing their fingers that President-elect Donald Trump’s reflation stimulus blitz matches the hype.

Glencore’s earnings per share are forecast to grow an earth-shaking 112% this year, while its dividend should soon yield around 2.4%. It has been lifted by today’s buoyant start to the year, with the share price up 2.79% today at time of writing, as copper rallies 1% to $5,588 an ounce, helped by signs of strong growth in Chinese factory and services activity. You can’t read much into one day’s trading, but for now the force is with both Royal Dutch Shell and Glencore.

The post Can Royal Dutch Shell plc and Glencore plc thrash the market again in 2017? appeared first on The Twelfth Magpie.

More reading

• Down 10% to below £6 now! Here’s why Glencore’s share price looks a bargain to me anywhere under £12.13
• Warren Buffett warns on valuations — is market cap-to-GDP flashing a bubble signal again?
• 2 FTSE 100 dividend stocks that stand out for shareholder returns
• Up over 100%, are these FTSE 100 names still among the top stocks to buy?
• Up 103% with a P/E of 261 — is this FTSE 100 stock still worth buying?

Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

But with the former reporting a small rise in profits this morning (and the market responding positively), is it time for investors to start boarding again? 

Green shoots?

Given its “tough operating environment,” today’s update from IAG wasn’t all that bad. The owner of British Airways, Iberia and Aer Lingus reported a Q3 operating profit of €1.205bn (£1bn). Earnings per share rose just over 18% and cash levels were at €6.19bn, up €334m on the 2015 year-end. Thanks to the relatively cheap price of oil, fuel unit costs before exceptional items for the quarter were down by 25.8%. The not-insignificant €162m (£145m) hit from currency fluctuations thanks to the fall in sterling will concern some.

CEO Willie Walsh remained upbeat, however: “Despite this, our unit revenue performance was better than in quarter 2 and our quarterly profit after tax was €970m before exceptional items, an improvement of 9.9% on last year. In the nine months, we made an operating profit before exceptional items of €1,915m, up 6.1% versus last year.”

These figures and comments (and a 10% increase to the interim dividend to 11 cents per share) were well-received by the market. In early trading, IAG’s shares were up over 5% to 435p.

Contrarian opportunity?

Let’s be clear: the share prices of IAG and its peers won’t bounce back to pre-referendum levels overnight. A rising oil price, further industrial action and terrorist incidents could all blight a recovery, at least in the short term. Indeed, after such an awful few months and with so many variables affecting the share price, I wouldn’t be surprised if most investors continued to shun these shares for a while yet, at least until the manner of our departure from the EU is clarified. 

That said, I can also understand the appeal of IAG and other airline stocks like easyJet for those willing to buy and hold the shares for the long term. As investors in blue chip giants like Royal Dutch Shell and BHP Billiton will testify, buying shares in large, resilient businesses at the point of maximum pessimism can be extremely profitable. Moreover, companies like IAG and easyJet are now trading on very low valuations (forecast price-to-earnings, or P/E, ratios of 6 and 10 respectively). Then there’s the dividends to consider.

Shares in IAG and easyJet both come with forecast yields of just below 5%. Despite recent events, both payouts appear safe for now. The Luton-based budget airlines’s dividend will be covered twice by earnings. IAG’s is even more secure with dividend cover at 3.5. The fact that the latter has now agreed to make annual payments of £300m for the next 11 years to plug its pension deficit, while continuing to grow its payout, is also likely to reassure investors.  

All this leads me to think that these airline stocks look tempting at the current time. 

The post Does today’s update from IAG suggest it’s time to return to these battered stocks? appeared first on The Twelfth Magpie.

More reading

• Could now be the time to buy great UK shares at bargain prices?
• easyJet shares are up 40% in a month. Here’s why
• Up 47% in a year! Now see what the booming IAG share price could be worth in 12 months
• Up close to 50% in a month, what’s next for the easyJet share price?
• The easyJet share price is up 49% in a month. What on earth’s going on?

Paul Summers owns shares in easyJet. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Millenial Magic

Stock markets sceptics like to point out that the FTSE 100 was higher on 31 December 1999 than it is today. It ended the last Millennium at 6,930, while at time of writing it stands at just 6,361, leaving it roughly 8% lower after 16 long years. Unfortunately, they are missing the point of investing.

These disappointing numbers do NOT mean that investors are down 8% after 16 years. For a start, only a handful will have invested at the very top of the market, most will have put money in at far lower levels. Some will even have invested when the index was as low as 3,519, the level it hit in March 2009 at the height of the financial crisis. They will be up 80% since then in capital growth alone.

Dividend delight

Even those who bought a FTSE 100 tracker just before the bell rang on the last day of 20th-century trading will still have made a surprisingly healthy profit on their investment, thanks to the magic of dividends. Dividends are the regular payment companies make as a reward for holding their stock, and if you had re-invested all your dividends back into a tracker bought in December 1999, you would be sitting on a 70% profit today.

Capital growth across the FTSE 100 may have disappointed this century but dividends have more than compensated for that. The latest Dividend Monitor from Capita Asset Services gives us this incredible figure — £1 trillion (tn) has now been paid out to UK shareholders so far this century, with plenty more to come.

That’s right, a cool £1tn has been divvied up among ordinary investors, helping to make some of them seriously rich.

They can be heroes

Three-quarters of the money you will ever make from investing in stocks and shares will come from dividend payouts, provided, that is, you re-invest them for growth. By ploughing dividends back into your shareholdings you even benefit when stock markets fall, as you will pick up more shares or units at the lower rate.

2016 looks set to be another great year for dividends. Payouts rose 6.4% to £14.2bn in the first three months despite a number of high-profile names cutting their payouts, notably in the mining sector. The damage has been largely offset by dividends heroes such as Royal Dutch Shell, the UK’s largest dividend payer, which is set to pay out a mighty £10.4bn this year, following the acquisition of BG Group.

Capita warns that dividend growth will slow this year but predicts that UK equities will nevertheless yield 3.6% over the next 12 months. With the Bank of England holding base rates at 0.5% for more than seven years and still no increase in sight, this is income heaven for hard-pressed savers.

So give a trillion thanks for dividends, because they continue to give ordinary people like you the opportunity to build serious wealth.

The post How YOU Can Cash In On The £1 Trillion Dividend Bonanza! appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Royal Dutch Shell. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The Share Centre has just named the top five popular Isa stocks among its crowd of investors. You probably won’t be surprised by the results, well maybe one of them will deliver a jolt!

GlaxoSmithKline

In with a bullet at number one is pharmaceutical giant GlaxoSmithKline (LSE: GSK), possibly the FTSE 100’s favourite long-term buy and hold. Glaxo has stretched our patience lately thanks to the Chinese bribery scandal, expiring patents and concern about its drug pipeline. The stock is actually down 12% over the past year but it does now trade at just 7.86 times earnings, while offering a juicier-than-usual yield of 5.86%. The Share Centre reckons its “pipeline of new drugs, diversification across consumer healthcare as well as biotechnology, and increasing exposure to emerging markets” makes it a ‘buy’ and the crowd goes wild.

Royal Dutch Shell

Oil giant Royal Dutch Shell (LSE: RDSB) has had an even more torrid year, falling 22%, but it’s up 16% in the last month and if the oil price revival continues you can expect more of that. The yield remains in peril although management will fight tooth and nail to retain it, and again, pricier oil will help. It isn’t often that a company’s yield matches its P/E ratio, but both are hovering around 7.5% today. If you want to play the oil price rebound, it may be time to join the crowd.

Lloyds Banking Group

I love Lloyds Banking Group (LSE: LLOY) so much I named it my stock tip for 2016, and in this case I don’t mind running with the crowd. The share price is fighting back after getting caught up in the January sell-off as investors anticipate a forecast yield of 6.5% for December 2017. The slowing domestic economy may knock this UK-focused retail bank but that shouldn’t deter investors who should be looking to hold this stock for decades.

Glencore

I was surprised to see troubled mining giant Glencore (LSE: GLEN) flying high in fourth place but it only goes to show there’s no such thing as bad publicity. After last year’s travails, the stock is up a crowd-pleasing 71% in the last month but don’t buy and expect a repeat performance in March. The commodities rally may be spent for now, as the reality of a slowing China reasserts itself. Expect more volatility to come.

BP

Investors can’t shake their oil addiction with BP (LSE: BP) revving its engines at number five. It currently yields a gushing 7.28% but it remains at risk with net debt soaring from $22.6bn to $27.2bn over the last year and the world swimming in a glut of black gooey stuff. The Share Centre hails it as a “buy” as management slashes costs to survive cheap oil. The truth is that where the oil price leads, BP will follow. So where will oil go next? No crowd on earth can answer that.

The post GlaxoSmithKline plc, Royal Dutch Shell Plc, Lloyds Banking Group PLC, Glencore PLC And BP plc Are The Nation’s Top 5 Isa Stocks appeared first on The Twelfth Magpie.

More reading

• Is there any value left in Lloyds shares now they’re over £1?
• Back below 500p, is it time to consider BP shares again?
• Prediction: this UK growth stock will outperform Lloyds shares over the next 5 years
• Just how bad could it get for the BP share price?
• Barclays, NatWest or Lloyds shares: which is the better pick for a UK retirement portfolio?

Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline and Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Petrofac is back

In January, with the price of Brent crude plunging to $27 a barrel, I ran the numbers on oil services specialist Petrofac (LSE: PFC) and concluded: “With forecast earnings per share growth of 174% this year, Petrofac could be a relatively safe way to play the [oil price] fightback, especially at its current valuation of just 6.3 times earnings.” Since then, stock markets have stabilised, Brent has crept up to around $36 and Petrofac’s share price is up almost 25%.

Last week, Petrofac announced a healthy 10% leap in full-year revenues to $6.8bn and a $440m profit before losses on its troubled Laggan-Tormore operation (falling to just $9m afterwards). Markets had already discounted its Shetland setback, especially with Petrofac now focusing on its key Middle Eastern region instead. Group backlog also rose 10% to record year-end levels of $20.7bn, giving excellent revenue visibility for 2016 and beyond. January’s 6.1% yield has now fallen to 4.84%, thanks to the share price bounce, but Petrofac still looks like a buy to me.

More sure of Shell

Oil major Royal Dutch Shell (LSE: RDSB) is also on the comeback trail, although its one-month rise is a less spectacular 7%. That’s still impressive, given negative sentiment swamping the stock at the start of February, after a dismal set of results. Shell’s year-on-year drop in Q4 earnings from $4.4bn to $1.8bn shook even the most hardened oil investors, while full-year profits dropped 87% from $14.9bn to $1.9bn.

Markets have since taken a closer look at the stock, and decided that things aren’t so bad. It still managed to generate $5.66bn of free cash flow in 2015, after tax and interest payments. True, that’s down 59% from $13.9bn in 2014, but remains impressive in today’s troubled oil markets. Shell is still sticking by its dividend, which now yields 7.61%, and while it remains at risk it does offer the potential of a right royal income stream. All now depends on that pesky oil price. 

Here Weir go

Glasgow-based engineer Weir Group (LSE: WEIR) enjoyed a sparkling February, its share price rising 13% after several years of misery. That’s particularly impressive given last week’s dismal set of full-year results, which saw revenues fall 21% to £1.9bn and profits down 46% to £220m. Weir sells high-pressure equipment for oil and gas, mineral and industrial applications, and when its customers hurt, it duly feels their pain.

There were signs of life amid the rubble, as cost-cutting reduced its debt by £36m to £825m despite lower profitability, and the dividend was maintained at 44p per share. Weir still faces a tough battle, especially if the embattled US shale sector finally surrenders this summer. Its minerals division remains vulnerable, as do oil and gas aftermarket revenues, and I fear that Weir is still swimming against the tide.

The post The Tide Is Turning For Petrofac Limited, Royal Dutch Shell plc And Weir Group plc appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Petrofac. The Motley Fool UK has recommended Royal Dutch Shell B and Weir. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.