If you have available funds right now, then investing some is a wise decision. If you have around the £2k mentioned in the title, this is enough to start to generate some returns from the stock market. If this is your first amount to invest, read on. If you have already invested in the past, read on too!
Below are two companies which I think could offer you good returns from the dividends paid out. You may wish to invest your funds simply in companies you believe will have a share price rally, but it can be hard to consistently pick winners.
Rather, I would prefer to buy into companies that have a healthy dividend that they pay out to investors. This way, not only do you put your money to work in hopes of an appreciating share price, but you are also able to generate some income during your holding period.
Safe as houses
My first pick is Barratt Developments (LSE: BDEV). It is a housebuilder and developer based in the UK, with a focus on the domestic market. The dividend yield is currently 7.5%, which makes it one of the highest in the FTSE 100.
If you compare this to the potential alternative of having a Cash ISA yielding around 1%, your £2k would increase in value a lot quicker. Let us say the share price in 12 months time is exactly where it stands currently, then you would have earned £130 extra just through the dividend versus the ISA.
In terms of the forecast for the business, it looks strong. Interest rates here in the UK are likely to stay around today’s levels for a while, currently at 0.75%. This supports applications for mortgages, as borrowers can access cheap funding in order to buy houses. This in turn boosts demand for the developments that Barratt builds.
Added to this is the potential end to the Brexit negotiations, where there appears to be a possibility of a deal coming up. This would help domestic businesses like Barratt that would be able to finally get on with business without being uncertain about potential changing regulations or other issues.
The second company I would suggest watching is British American Tobacco (LSE: BATS). It currently also has a dividend yield of 7.5%. This has increased recently due to a fall in the share price, largely put down to tighter regulation in the market and tobacco-related health scares.
However, I think the company is shifting in the right direction, and could be a very good longer-term buy. Recently there has been news out that the company is cutting some of its workforce in order to focus more on vaping products. I believe this is the future for tobacco companies, and BATS agrees.
It said it is aiming to have £5bn (around 20%) of its revenue come from these ‘new category’ products by 2023. If it achieves this, I would strongly think the share price would have increased to reflect the changing market.
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Jonathan Smith does not have a position in the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.