Looking at the stock market, it’s easy to see why talk of a recovery is so prominent at the moment. With that in mind, here are two UK shares that I think could benefit from this potential rebound. Let’s take a closer look at why I think they might be good additions to my portfolio.
High dividend yields
Shares in Persimmon (LSE:PSN) are down 12% in the last three months and they’re currently trading at 1,736p.
For the six months to 30 June, the housebuilding firm announced that the average selling price per house rose £9,400. Additionally, it stated that inflation in house sales was offsetting the rising cost of raw materials.
Furthermore, the company reiterated its full-year completion guidance. However, completions fell during the first half of the year to 6,652 from 7,406 during the same time in 2021. Also, pre-tax profit declined from £480m to £439.7m.
There’s also the possibility that rising interest rates could negatively affect the business, because potential homeowners are put off taking on mortgages that are more expensive.
That said, investment bank Liberum recently issued a ‘buy’ rating for Persimmon stock. This was chiefly because it believes that competitive pricing and margins should outweigh lower volumes of house completions.
Liberum was also attracted by Persimmon’s dividends. Last year, it paid a dividend of 235p per share. This works out as a yield of 13.54% at current levels.
While I would be buying the shares for potential growth, it’s also interesting that I could derive income merely by holding the stock. It’s worth noting, though, that dividend policies could change at some point in the future.
Solid earnings growth
Second, Diageo (LSE:DGE) reported that net sales rose by 21.4%, to £15.5bn, for the year ended June. In addition, operating profit grew by 18.2% to £4.4bn.
For the fiscal years between 2018 and 2022, earnings per share (EPS) increased from 118.6p to 151.9p. This is consistent and results in a compound annual EPS growth rate of 5.07%. While this is lower than many growth stocks, I’d still be satisfied with this solid growth as a potential investor.
It’s important to note, however, that this growth is not guaranteed in the future.
And investment bank Deutsche Bank downgraded the alcoholic beverages conglomerate to ‘sell’ on account of the current unpredictable economic environment. It also lowered its price target from 4,050p to 3,230p.
On the flip side, the firm has been working hard to use higher pricing to manage costs, while taking steps to mitigate supply chain issues. Both of these steps have helped the company continue to deliver for its shareholders.
Overall, while both of these companies face challenges, they have been consistent. As such, I’ll add each to my portfolio in anticipation of a market rebound.
