I think these are the best shares to buy now

The defensive nature and income credentials of these two shares could make them some of the best shares to buy now on the London market, I feel.

| 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.

I think UK retail giants J Sainsbury (LSE: SBRY) and Morrisons (LSE: MRW) could be some of the best shares to buy now. 

The reason why I believe this to be the case is simple. Both of these supermarket retailers provide an essential service for consumers. No matter what the future holds for the UK and global economy, humans will always need to eat and drink.

And while there are tens of thousands of smaller retailers across the country that provide access to these critical resources, the sector leaders, such as Morrisons and Sainsbury’s, have tremendous economies of scale, which means they can offer lower costs for customers and better profits for investors. 

The best shares to buy now

Neither of these retailers is particularly exciting. But I don’t believe that an investment has to be exciting to yield profitable returns. 

For example, over the past five years, an investment in Morrisons has produced an average annual return of 4%, including dividends. A £10k investment in the retailer in 2016 would now be worth around £13k. A similar investment in the FTSE 100 over the same period would be worth around £10.5k. 

I think these figures show the retailer’s defensive qualities. The past five years have been among the most turbulent periods for the UK economy in recent memory. However, despite this volatility, an investment in Morrisons has proved to be a safe haven. 

Granted, a profit of £2,500 in five years isn’t the best return in the world. Nonetheless, as a way to protect one’s portfolio against further uncertainty, Morrisons and Sainsbury’s could be some of the best shares to buy now based on this performance. 

Income potential

One of the best qualities of these two investments is their income credentials, I feel.

In recent years, Morrisons has consistently paid a regular dividend and provided investors with a special payout depending on group profitability. This year, analysts are forecasting a total yield of 5.5% from the enterprise. Considering the defensive nature of the firm’s operations, I reckon this dividend is exceptionally sustainable. 

Meanwhile, the yield on Sainsbury’s shares could hit 5.6% next year, based on current projections. Once again, the company’s defensive nature suggests to me that this distribution is sustainable, even in the current economic and political environments. 

The bottom line

Often, the best shares to buy are not those with the most exciting outlooks. Companies that can produce steady profits year after year can make the best long-term investments. And it’s for that reason that I think Sainsbury’s and Morrisons could be some of the best UK shares to acquire at this moment in time. 

Both companies have proven to investors over the past five years that they can operate calmly in a crisis. What’s more, both stocks offer dividend yields far in excess of the market average, and compared to the current base rate of 0.1%, the yields look incredibly attractive. 

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.

Rupert Hargreaves has no position in any of 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.

More on Investing Articles

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

How I’d invest my first £20k ISA to target £4,900 a year from dividend shares

Looking for dividend shares in a new Stocks and Shares ISA, and want diversification too? Here's how I'd go about…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

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

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »