I see plenty of potential buys among UK shares right now. And I’m looking at some candidates with updates coming our way in May.
Dividend stock revisted
I often think of National Grid (LSE: NG.) as possibly the best dividend stock I’ve never bought. Full-year results are due on 15 May, and I’m taking a fresh look.
The company shocked investors in May 2024 with a new rights issue. But I think those of us who expected it to just carry on unchanged for ever and a day were perhaps a little naive. The energy distribution business is changing. And that needs extra capital expenditure.
The share price has just about recovered to around its level before the resulting dip. And up 16% in the past five years, it’s some way behind the FTSE 100. But we’re looking at a pretty respectable forecast dividend yield of 5.1%.
There’s a risk that the new five-year capital expenditure plans could hold back dividend rises in the next few years. And we might even see more cash needing to be raised. But I still think I see a long-term cash cow that’s worth seriously considering.
Insurance reinvented
The same day brings us a Q1 update from Aviva (LSE: AV.), which has been through a pretty thorough transformation in the past few years.
Aviva is one that could benefit from falling interest rates. When that happens, and when Cash ISA interest rates drop, a steady dividend stream could start to look more and more attractive. Right now forecasts put the 2025 yield at 6.4%.
At FY results time for 2024, CEO Amanda Blanc said: “We have clear trading momentum which is generating strong and reliable growth. We have increased our dividend, again, and are committed to growing it further.“
Aviva is in the throes of its takeover of Direct Line, with cash consideration coming from existing resources. How that might affect shareholder returns remains to be seen.
My main concern is the stock valuation, with a forecast price-to-earnings (PE) ratio of close to 12. Is that too high to allow for the cylical risk in this business? Maybe. But the main reason I’m not considering an investment now is that I already bought enough.
Invest in investment
AJ Bell (LSE: AJB) has first-half results due on 23 May. I’ve looked at investing platform providers before, but I tend to be put off by relatively high P/E multiples. In this case we’re looking at a ratio of 18.5. And with forecast earnings growth fairly modest, that would only drop to around 15.5 by 2027.
But then, a good P/E depends on the nature of the business. And in this case I see a strongly defensive one. What happens when some catastrophe leads to a stock market slump? Well, the recent fall was down to fears that US tariffs genuinely could harm company earnings. And that led to a whole load of investors selling stocks.
That’s good for AJ Bell, which makes more money when more people are trading. And when markets are bullish… AJ Bell makes more money from more people trading.
I’m still undecided. I need to think some more about this, and give it some serious consideration.
