With thousands of FTSE companies to choose from, it’s hard to know where to start investing.
I’ve been putting my spare cash into the stock market for a few years now, but if I had to start from scratch, here are two shares I’d consider buying.
Keeping the lights on
Due to its reputation for being steady and reliable, National Grid (LSE:NG.) is a great starter stock.
The company’s responsible for managing the electricity grid in England and Wales, as well as supplying electricity and gas to parts of the UK and US.
I believe other companies are more likely to grow faster, but its earnings are generally predictable, which means it tends not to deliver any surprises (nasty or otherwise).
National Grid has a monopoly in its key markets, which takes away the problem that most businesses face of having to find new customers. The disadvantage of this is that it’s regulated, and therefore more limited in what it can do in some areas than other companies.
However, it does pay a generous dividend. Shareholders received 55.44p a share in respect of its 2023 financial year.
Although such returns are never guaranteed, I take comfort from the fact that it last cut its payout in 2011.
A dark horse
Lloyds Banking Group (LSE:LLOY) claims to have more shareholders than any other business in the UK. I’m one of the 2.3m who has a stake in the bank and — I have to admit — the stock’s recent lack of growth continues to frustrate me.
However, I think now’s a good time to buy.
The bank has a 20% share of the domestic mortgage market and generates nearly all its income in the UK.
Rising interest rates have made variable rate loans increasingly expensive. This has helped Lloyds’ income, but also led to more borrowers defaulting on loans.
However, I think the worst is behind us.
With inflation starting to ease, economists are expecting interest rates to start falling soon. And the UK economy is expected to grow in 2024, and 2025.
Lloyds also pays a healthy dividend. I think shareholders will receive 3p a share over the next 12 months. Dividing this by its current share price gives a yield of 7.3% — far more than I’d earn from its savings accounts.
Compounding
Both stocks pay good dividends. And if I was starting my investing journey again, I’d make sure that I keep reinvesting these in buying more shares.
That way my portfolio could grow more quickly. This is known as ‘compounding’, which was once described as the eighth wonder of the world.
For example, if I invested £1,000 in Lloyds, I could buy 2,398 shares. If my dividend prediction is correct, I’d receive enough cash, in 2024, to buy another 173 shares, assuming the share price doesn’t change.
In 2025 — with a 3p payout — I could buy another 185. And so on.
Over 10 years, if everything remains unchanged, I’d be able to buy an additional 2,408 shares. These would be worth £1,004 at the current share price.
Of course, shares prices can go down. And dividends may also fluctuate, so these figures must be treated with caution.
But if the scenario outlined above were to come true, doubling my money in 10 years sounds like a winning portfolio to me!
