If I had £5k in an ISA right now, which FTSE 100 stocks would I buy? Well, there are three shares that I’ve been buying this year and are now among my top holdings. So I’d choose these.
Superb income
First up is pensions and insurance giant Legal & General (LSE: LGEN). The main attraction here is a mouth-watering 9% dividend yield. Based on today’s share price of 219p, the forecast yield is almost 10% for next year.
That’s an incredible level of passive income on offer, which is why I’ve been buying the shares again recently. It means I could hope to generate nearly £1,000 from £10,000 worth of shares.
Of course, dividend yield forecasts aren’t always met. In the case of L&G, the stock market could go south, knocking profits in its investment management division. Indeed, falling asset prices in H1 contributed to a 10% drop in the value of the company’s assets under management (AUM).
However, falling interest rates should see its AUM bounce back in time. And the business generates enough cash to fund its dividend from its various products and operations.
Looking forward, L&G is committed to increasing its payouts by 5% a year. It has long-term growth opportunities in bulk annuity/pension risk transfer, as well as tailwinds from an ageing population.
A drinks powerhouse
Next, we have global spirits firm Diageo (LSE: DGE). Its shares have fallen 15% in 2023, leaving them on a forward P/E ratio of 18.5. That’s the lowest it has been for quite some time.
One reason for this drop in value is stubbornly high inflation and economic uncertainty in North America (Diageo’s largest market by far). This concern is valid as spending pressures could see drinkers substitute their favourite tipple for cheaper alternatives. That could harm some of Diageo’s premium-priced brands.
Despite this concern, the long-term picture looks promising. In 2022, global spirits sales totalled over $140bn. And it’s estimated that the market will maintain a compound annual growth rate of 5.9% from 2023 to 2027. I’d expect it to continue growing from there.
Meanwhile, due to its timeless luxury brands like Johnnie Walker and Tanqueray, Diageo is an incredibly profitable company. In fiscal 23 (which ended 30 June for the firm), it made an operating profit of almost £5bn from revenue of £17.1bn.
That’s an operating margin of around 29% — one of the very best in the alcoholic beverages sector.
Investing in progress
Finally, I’d invest in shares of Scottish Mortgage Investment Trust (LSE: SMT). It runs a portfolio of high-growth stocks that includes Amazon, ASML, Ferrari, SpaceX and TikTok owner ByteDance.
Surging interest rates have severely dented investor enthusiasm for many of the growth shares that Scottish Mortgage holds. Especially private companies, which make up 26% of the trust’s portfolio. Valuing these unlisted assets can be tricky.
Consequently, the share price has been cut in half in two years.
This underperformance could continue for a while yet. But I doubt it will go on indefinitely. At some point, I’d assume, investors will warm back up to the theme of technological progress.
We’ve already seen that this year with (narrow) investor excitement around artificial intelligence. Mega-trends the trust is backing include carbon capture, mRNA-based medicines and digital payments.
