Investing in stocks for the first time can be a daunting experience. After all, there are thousands of stocks listed here in the UK and thousands more listed internationally. Where do you start?
The best approach, in my view, is to spread your money over a number of different well-established, blue-chip companies that have great track records and attractive growth prospects. With that in mind, here’s a look at two FTSE 100 shares that I believe are well suited to beginners.
A great stock to start with
If you’re a beginner investor, Unilever (LSE: ULVR) is the perfect stock to buy, in my opinion. It’s a leading consumer goods company that owns a wide range of well-known brands. The chances are, you use some Unilever products yourself. Dove, Persil, PG tips, Domestos, and Radox are just some of its brands.
One reason I think Unilever is well suited to beginners is that it’s a lower-risk stock. No matter what’s happening in the global economy, people buy its products. This means that its earnings are quite consistent. As a result, ULVR shares often fall less than the wider market when the stock market is volatile. When the FTSE 100 index fell nearly 35% due to Covid-19 in February and March, for example, ULVR shares only fell about 20%.
I also like the fact that Unilever has an excellent track record in terms of generating shareholder wealth. Not only have investors done very well from the rise in its share price over the years (the stock is up over 150% in 10 years) but they have also picked up plenty of dividends along the way. The dividend yield on the stock is currently about 3.2%.
Unilever shares currently trade on a forward-looking P/E ratio of about 21.7. I think that’s good value.
A lower-risk FTSE 100 share
Another FTSE 100 share that I believe is well suited to beginners is Diageo (LSE: DGE). It’s a leading alcoholic beverages company that owns a top portfolio of brands including Johnnie Walker, Smirnoff and Tanqueray.
Like Unilever, Diageo is a lower-risk stock. People buy its alcoholic beverages during both the good times and the bad. This means that earnings are fairly consistent, which translates to less share price volatility.
Diageo does face risks associated with Covid-19, of course. In the short term, earnings are likely to be down due to the fact that so many bars and pubs across the world have been forced to close.
However, the long-term growth story here looks attractive. As wealth continues to rise in emerging markets (where Diageo generates a high proportion of revenues), demand for its brands should rise.
Diageo also has a great track record when it comes to generating shareholder wealth. Not only has the stock delivered fantastic share price gains over the years, but investors have been rewarded with consistent dividends. Currently, the dividend yield is about 2.4%.
Diageo is not the cheapest stock in the FTSE 100. Currently, the shares trade on a forward-looking P/E ratio of about 23.9. However, this is a high-quality company. So, I think it deserves a premium to the market.
Edward Sheldon owns shares in Unilever and Diageo. The Motley Fool UK has recommended Diageo and Unilever. 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.