If you are just getting started investing in individual stocks and shares, the choice can seem daunting. There are quite literally thousands to choose from, after all.
Most newbie investors start off with the FTSE 100 and there are some incredible opportunities around right now, such as these two that yield more than 9% a year. You’ve probably already looked at big names such as Lloyds Banking Group, Vodafone and BP, but here are two you might have overlooked.
Reckitt Benckiser (LSE: RB) is in your kitchen, bathroom and possibly also your bedroom, as its brands include Air Wick, Clearasil, Dettol, Durex, Harpic, Nurofen and Scholl. Frankly, they’re everywhere and, increasingly, they are all over the world, as emerging market consumers spend their new-found wealth on Western goods.
Steady as she goes
This will never be a shoot-the-lights-out stock. It’s too big for a start, with a market-cap of nearly £44bn. See this one as a slow burner, providing steady capital growth and a rising dividend yield, with defensive characteristics when markets correct. People still buy its everyday essentials, even when incomes are squeezed.
Its share price has grown just under 30% over five years, outpacing the FTSE 100, up 12% over the same period. The yield looks relatively low at 2.8%, but it’s comfortably covered twice by earnings, and management policy is progressive. Over the last five years the payout has climbed from 139p per share to 170.70p, an increase of almost 23%. A further 10% growth to around 188p is expected over the next couple of years.
Reckitt Benckiser has also delivered consistent earnings per share growth for each of the last five years, and City analysts expect that to continue in 2019 and 2020. Its share price may look a bit pricey at 18.5 times earnings, but that’s only slightly above the FTSE 100 average of 17.19. In fact, it’s usually more expensive.
Anglo-Australian giant BHP Group (LSE: BHP) is a global mining group with a market-cap of nearly £37bn whose interests encompass mining, metals and petrol. In many respects, it’s a play on the global economy, because when the world is growing fast and hungry for natural resources, BHP’s sales and revenue surge. When sentiment slips, so does BGP.
The commodity sector is cyclical. For example, all of the major mining groups plunged in 2015, but have since recovered strongly. The BHP Group share price is up 97% over just three years, although please don’t buy it expecting a repeat performance.
Ups and downs
There’s growing talk about a global recession, which would hit the share price hard. Yet it weathered the 2015 sectoral slump in good health, cutting costs and offloading non-core operations. That suggests to me it could withstand the next downturn as well.
BHP Group offers strong and sustainable cash flow, which should help fund its dividend. This is currently a massive 8%, albeit with cover of just one. It has talked of paying 50% of its underlying profits to shareholders, including through buybacks. However, its earnings can be volatile, and its dividend may not be completely reliable.
Its future partly depends on China, which is still the world’s largest commodity consumer. So there are risks, but that’s shares for you. Trading at 13 times earnings, at least BHP Group isn’t overvalued right now. It may be too risky for some, though.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. 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.