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Two top buys for a starter portfolio

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2017 is almost over. However, if you were thinking about starting a share portfolio this year and haven’t got around to it yet, don’t stress. There’s still plenty of time. With that in mind, here’s two stocks that I would certainly consider buying if I was starting a share portfolio today.

Diversification is key

New investors often face one main problem when they start out. Every single financial textbook recommends ‘diversifying’ your funds over many different stocks when investing in shares. However, when we start out, we often don’t have enough capital to buy a whole portfolio of stocks.

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The solution? Investment trusts – securities that can be bought and sold in the same way as shares, but actually consist of a portfolio of stocks, meaning that you get access to a diversified share portfolio with just one trade.

One popular option, and one that I hold myself, is the City of London Investment Trust (LSE: CTY). This is a diversified portfolio of nearly 120 stocks that aims to provide long-term growth in income and capital by investing in UK-listed companies. It is filled with blue-chip names such as such as Royal Dutch Shell, HSBC Holdings, Lloyds Banking Group and Unilever, meaning that investors get exposure to some of the world’s largest companies through just one holding.

One of the main appeals of this specific investment trust is its fantastic dividend history. Indeed, the dividend payout has increased every year for over 50 years in a row, a remarkable track record. Last year the payout was 16.7p, which is a dividend yield of 3.9% at the current share price.

I see the City of London Investment Trust as a core portfolio holding, and I plan to keep holding it, and enjoying the regular stream of dividends, for a long time to come.

A dividend champion

For those happy to take on the risk of owning individual companies, I believe British American Tobacco (LSE: BATS) has many key attributes of an ideal starter stock.

Founded in 1902, the company is one of the largest tobacco firms in the world, selling its brands in over 200 countries worldwide. The tobacco giant has an outstanding track record of generating shareholder wealth, and with the key acquisition of Reynolds American under its belt, and some innovative new products in its portfolio, I see no reason why it can’t continue to generate attractive returns, despite health concerns over smoking.

It also has a fantastic dividend track record, having increased its dividend payout by over a third in the last five years alone. City analysts forecast 8.5% and 9.2% increases in the dividend this year and next, with this year’s expected dividend payment of 184p meaning a dividend yield of 3.7% at the current share price.

The stock enjoyed a strong 18-month share price run up to June, trading above 5,600p for a while, but in recent months the price has pulled back by a considerable margin. At a price of 5,000p today, the stock’s forward P/E ratio is 17.8, a valuation that looks reasonable to me, given the company’s excellent track record.

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Edward Sheldon owns shares in City of London Investment Trust and Royal Dutch Shell. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended HSBC Holdings, Lloyds Banking Group, and Royal Dutch Shell B. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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