If you have £5k to invest and don’t know where to start, there are two companies that I believe could be the perfect place for you to store your money.
Even though the FTSE 100 is full of blue-chip stocks that could help you grow your wealth, I’ve chosen these two in particular because of their international diversification, growth track record and commitment to returning cash to investors.
The London Stock Exchange (LSE: LSE) is one of the most critical financial companies, not just in the UK, but also in Europe. The group is best known for operating the UK’s leading stock market, but is also the majority owner of LCH Clearnet, which provides clearing services for traders across Europe. Last year, the company cleared more than $1.1trn of complex derivative trades, that makes it the biggest clearing house in Europe.
As the global economy has grown, so has the trading volume on the company’s owned and operated exchanges and platforms. Earnings have surged as a result. Net profit has more than doubled over the past six years, and earnings per share have jumped from 66p in 2012 to 173p for 2017. Analysts are expecting further growth in 2019. The City has pencilled in an earnings figure of 195p for 2019.
This projection puts the stock on a forward P/E of 24, which is slightly more than I’d usually want to pay for any stock. However, considering the group’s dominance of Europe’s financial markets, I think this is a price worth paying for a business that will likely remain one of Europe’s leading financial institutions for many decades to come.
Large blue-chip companies that dominate markets are, in my mind, the best stocks to buy for a starter portfolio. That’s why I’m recommending InterContinental Hotels Group (LSE: IHG) as my second stock to buy with £5k.
As my colleague Roland Head recently pointed out, one of the most attractive qualities of this leading hotel group is its profitability. After selling and leasing back a large percentage of its hotel portfolio, the company’s return on capital employed — a measure of profit for capital invested in the business — is just under 40%. That makes it one of the most profitable companies (on this metric) in London today.
Most of the excess profit the group generates is returned to investors. This shareholder-friendly business model is really attractive in my view, and that’s why I think the stock would suit any portfolio.
Shares in the hotelier currently support a regular dividend yield of 2% although, historically, management has always topped up the regular payout with special dividends. Including these capital returns, the stock has produced a total return of 25% per annum over the past decade. I think it’s unlikely IHG will repeat this performance over the next decade, but I’m confident investors will be well rewarded for investing today.
Shares in the company are dealing at a forward P/E of 18, which looks a bit pricy at first glance, but it’s in line with the group’s five-year average.