After first investing in tracker funds and managed funds, many investors aim to achieve higher returns by branching out into the shares of individual companies. I think that’s a good approach and I’d aim to build a starter portfolio with well-balanced FTSE shares.
To me, balance means looking for stocks in defensive, steady sectors backed by businesses with the potential to provide shareholders with both income from dividends and growth. Here are three names I’d be happy to allocate a £5k investment between.
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Two income picks for a starter portfolio
In the FTSE 100, I’m keen on pharmaceutical giant GlaxoSmithKline (LSE: GSK). The company’s business has recovered in recent years from a period of falling annual earnings brought on by patent-expiry issues. Indeed, the research and development pipeline has helped the firm rebuild its earnings because of the new medicines and treatments the company is bringing to the market.
However, the stock remains depressed despite a decent record of consistent shareholder dividend payments through those uncertain years. And all the recent challenges relating to the Covid-19 crisis might not have helped investor sentiment. But with the shares close to 1,443p, the forward-looking dividend yield for 2021 is just above 5.5%.
I reckon that’s income worth collecting in a starter portfolio while waiting for growth in earnings to pick up in the years ahead.
Meanwhile, the FTSE 250’s Tate & Lyle (LSE: TATE) has a long and impressive record of shareholder dividend payments. And I reckon such income looks set to continue for shareholders in the coming years. Indeed, City analysts following the company predict modest increases in the dividend ahead.
The firm earns its living by providing ingredients and solutions to the food, beverage, and other industries. And the food sector, in general, as a defensive industry has enabled Tate & Lyle to trade through the current coronavirus crisis. But I reckon the defensive characteristics of the company’s underlying business will help it to prosper during general economic downturns in the future. As such, I reckon the stock is ideal for a long-term portfolio of shares.
With the share price near 674p, the forward-looking dividend yield for the trading year to March 2022 is a healthy-looking 4.5%. I think that’s income worth having.
Dividend growth potential
But I’d also go for business software and solutions provider Sage (LSE: SGE) in the FTSE 100. The firm has been moving its customers to cloud-based subscription services and building up some decent-looking recurring revenues. Indeed, earnings tend to be ‘sticky’ for the company because of all the inconvenience and costs faced by customers if they attempt to change suppliers.
As such, I see Sage as operating a business with defensive characteristics. And a multi-year record of generally rising cash flow and shareholder dividends gives me confidence in that assessment.
With the shares at 722p, the dividend yield isn’t as high as the other two companies but it does have a long history of growth, which I see as attractive. The forward-looking dividend yield for the trading year to September 2021 is just below 2.5%. I’d buy some of the shares now to hold for the long term.