I’m building a wishlist of top FTSE 100 shares to buy when I next have cash to invest. Here are two I think are too cheap to ignore.
National Grid
Power transmission business National Grid (LSE:NG) could be one of the best shares to buy during this tough time for the UK and global economies. The essential service it provides means revenues and cash flows should remain broadly robust, giving it the means to continue paying above-average dividends.
The stock’s defensive qualities are obvious. But the ways it will benefit from growing demand for green energy attracts less interest. As a long-term investor this is of massive importance to me.
In order to meet decarbonisation goals, the amount spent on electricity transmission infrastructure between 2023 and 2030 will need to be five times higher than that of the past three decades. This means serious asset base growth at National Grid that could dive profits and dividends higher for years to come.
Given all of the above, I think a forward price-to-earnings (P/E) ratio of 14.5 times looks pretty low. The company’s 5.9% dividend yield for this financial year (to March 2023) is also quite attractive. I think it’s a top buy despite the impact of higher-than-normal interest rates on its debt servicing costs.
Legal & General Group
Financial services giant Legal & General (LSE:LGEN) is one of my biggest purchases in 2023 following its share price decline. Further sustained weakness means that it still looks cheap, the business trading on a forward P/E ratio of just 9.9 times.
The FTSE firm’s low valuation reflects investor fears that revenues could slump as the global economy struggles. I’d argue though that recent robustness suggests Legal & General shares deserve a higher rating. Operating profit for the first half remained basically unchanged year on year at £941m.
I believe the share price here can recover strongly over the long term. This is chiefly because, as life expectancy rises and elderly populations rapidly grow, demand for retirement and investment products will follow suit.
Legal & General sells a vast array of different financial products. This gives it multiple ways to capitalise on this demographic opportunity and reduces risk by reducing dependence on a certain asset class.
The group’s wide geographic wingspan could also give it the scope to deliver huge profits. It estimates that there are more than £6trn worth of pension liabilities across its UK, Irish, US, Canadian and Dutch marketplaces, for example, only a fraction of which have been transferred to insurance companies.
I also like the company because of its robust balance sheet. A Solvency II ratio of 230% (as of June) means that, even if earnings growth disappoints, the company should still have the means to continue paying gigantic dividends, at least in the near term.
City analysts agree with my assessment. In fact, they expect the company to meet its objective of raising dividends by 5% over the next two years at least. This results in gigantic yields of 9.1% and 9.6% for 2023 and 2024 respectively.
Like National Grid, I think Legal & General shares could be a great way for me to make serious passive income.
