Investing your first £1k? I’d consider these 2 FTSE 100 dividend and growth stocks

Harvey Jones picks out two FTSE 100 (INDEXFTSE: UKX) stocks that could lay the groundwork for a successful portfolio.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

Big names

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.

Going underground

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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »