In the second half of 2022, my wife and I built a new mini-portfolio of carefully selected shares. This pot now includes 10 UK shares and seven US stocks. We plan to add yet more companies in the second half of this year.
But for now, these are among my favourites.
#1: Legal & General
From 1987 to 2002, I spent my early career working in UK financial services. During this time, I became a great admirer of the leadership team and business model of insurer and asset manager Legal & General Group (LSE: LGEN).
Today, this 187-year-old business manages over £1.2trn of assets for more than 10m clients worldwide. With such a huge asset base, when financial markets do well, so too does L&G. But when markets stumble, as in 2022, the L&G share price can suffer and that’s an ongoing risk.
Why do my wife and I own L&G stock today? First and foremost, we consider it to be a quality British business. Second, its stock is lowly rated, trading on a price-to-earnings ratio of a mere 6.5.
Also, L&G’s dividend yield is one of the highest in the London stock market. Currently, this share offers a cash yield of over 8.2% a year, versus just 3.7% for the wider FTSE 100 index.
And it has a very strong balance sheet, packed with high-quality liquid assets. Indeed, during the 2020-21 pandemic panic, it was among a handful of financial firms that maintained its cash payouts during this crisis.
Over one year, L&G stock is down 4.7%, but is up 22.3% over the past three years (excluding dividends). For me, this is one UK share I’ll gladly keep for the long term.
#2: Rio Tinto
Rio Tinto (LSE: RIO) — ‘red river’ in Spanish — is one of the world’s largest mining companies. Of course, mining is a dirty business, leading some ESG (environmental, social and governance) investors to avoid this stock.
My wife and I also own Rio Tinto stock, which we bought for several reasons. It’s a high-yield dividend play. At Friday’s closing share price of 4,948.5p, Rio stock offers a cash yield of over 8.2% a year — bang in line with L&G’s yield.
And similar to L&G, Rio shares trade on a low multiple of earnings. Their price-to-earnings ratio of below 8.1 is far below the FTSE 100’s multiple of 14 times.
Plus I view this £83.3bn Footsie super-heavyweight as a recovery play for when the global economy starts growing strongly again. And as demand for base metals rises, especially in China, I expect Rio to benefit hugely.
Then again, history has taught me that owning mining shares can be a rough ride, especially during downturns in the commodity boom-bust cycle. And miners often cut their dividends during hard years.
Finally, while I fully expect Rio Tinto to record lower earnings in 2023 than in 2022, I don’t expect this trend to continue into 2024. Hence, I’m happy to own this high-yielding UK share for at least the next five years!
