Starting a share portfolio can seem like a daunting experience. There are thousands of stocks listed here in the UK and thousands more listed across the world. Where do you begin?
The key, in my opinion, is to keep things simple. With that in mind, today I reveal two that I believe could be excellent beginner stocks.
One company that I think looks perfect for a starter portfolio is BAE Systems (LSE: BA). It’s a defence, aerospace and security company that generates sales not only in the UK, but also in countries such as the US, Saudi Arabia and Australia.
There are several reasons why the stock has strong starter potential one being that it is easy to understand. It builds fighter jets and military ships, as well as electronics products such as radars. It also has a growing cyber security arm, helping to protect its customers against cyber threats. With geopolitical uncertainty on the rise, I believe demand for BAE’s products should remain robust in the medium term.
Second, the defence specialist appears to have a very reasonable valuation right now. The stock currently has a P/E ratio of 13.3. A general rule of thumb is that a ratio under 15 is considered to be cheap.
Third, the company also pays a nice dividend, and has a strong track record of increasing the payout. A dividend of 21.8p per share is expected for the year just passed, which is a yield of 3.8% at the current share price.
BAE Systems was one of the first stocks I bought when I started building my long-term share portfolio and I haven’t been disappointed with the results. For those starting out today, the stock still looks like a good choice, in my opinion.
Edinburgh Investment Trust
Another good option for beginners is to consider a buying an investment trust. These are companies that can be bought and sold like regular shares, yet actually own a whole portfolio of stocks themselves. The key advantage here is the powerful diversification benefits you can obtain. Even if you only have £500 to invest, you could potentially put it into over 100 companies. This would reduce the risk of your portfolio.
One investment trust that has considerable starter appeal is the Edinburgh Investment Trust (LSE: EDIN). Its goal is to provide capital growth in excess of the FTSE All-share index, as well as dividend growth that exceeds UK inflation. The trust mainly invests in UK stocks but can invest 20% of the portfolio outside the UK.
At the end of November, its top five holdings were British American Tobacco, BP, Legal & General, AstraZeneca and US-listed Altria. I’ll also point out that BAE Systems, listed above, was the seventh largest holding in the fund.
Over the long term, the performance of this trust has been excellent. For example, for the five years to the end of November, the net asset value (NAV) increased 87%, comfortably beating the FTSE All-share index’s return of 57%. The trust also rewards shareholders with regular dividends. Last year, investors received 25.35p per share, a yield of 3.6% right now.
Given its exposure to blue-chip companies, long-term track record and healthy dividend yield, I believe the Edinburgh Investment Trust would make an excellent buy for those starting a share portfolio in 2018.
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Edward Sheldon owns shares in BAE Systems. The Motley Fool UK has recommended AstraZeneca and BP. 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.