If I had some funds to invest right now, I’d buy three FTSE 100 stocks. They are LondonMetric Property (LSE: LMP), CRH (LSE: CRH), and Taylor Wimpey (LSE: TW.).
Despite the fact that dividends are never guaranteed, here’s why I like these picks for juicy returns.
What they do
LondonMetric is set up as a real estate investment trust (REIT), meaning it makes money from property. The beauty of REITs is that they must return 90% of profits to shareholders.
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CRH is a construction supply business, including materials such as cement, asphalt, and other aggregates.
Taylor Wimpey, the second-largest residential property developer in the UK, with a wide presence, and favourable track record to boot.
The good stuff!
I’m a fan of LondonMetric’s diverse operations. It doesn’t have all its eggs in one basket, like many other REITs. Diversification is a great way to mitigate risk. Plus, it gives the business the flexibility to capitalise on trends. LondonMetric possesses many logistics facilities to capitalise on the current e-commerce boom, and is moving away from office space, which is decreasing in demand due to home working trends.
From a returns view, a dividend yield of 5.2% is attractive. For context, the FTSE 100 average is 3.9%.
CRH’s wide presence, as well as the potential for dividend growth is exciting. Demand for further infrastructure is linked to a rising global population. The demand for its products could soar, and boost earnings and returns. A prime example of this is CRH potentially capitalising on a huge infrastructure bill passed recently in the US, which is where the firm makes most of its money.
From a returns perspective, CRH shares yield close to 2% currently. However, I can see this growing over time.
Taylor Wimpey is in a prime position to benefit from the housing imbalance in the UK. Demand is currently outstripping supply. With its favourable market position and reputation, the business could find that better economic conditions could catapult the business to new heights. In turn, this could result in boosted earnings and returns.
At present, the shares offer a dividend yield of 6.2%. Plus, the shares look decent value for money on a price-to-earnings ratio of just 15.
Risks to consider
REITs use debt to fund growth, and buy new assets to make money from. LondonMetric may find this harder at present due to higher interest rates as debt is costlier to service and pay down. This may have an impact on future returns.
For CRH, economic shocks are a worry. When these occur, construction projects can grind to a halt. This could result in earnings and returns being impacted. This is a cyclical risk I’ll keep an eye on.
It’s been a tough time for house builders due to higher costs related to inflation damaging completion numbers and sales. Higher costs take a bite out of profits, which underpin returns. Plus, buyers have been deterred by higher interest rates, which translate into higher mortgages. Despite inflation coming down, and a new government in place making promises to address the housing crisis, we’re not out of the woods yet. A continued murky economic picture could have a detrimental impact on earnings and returns too.
