With £2,000 to invest in UK shares, I think I could find some long-term growth potential. Here are a couple of what I see as UK shares to buy now.
Lloyds on the rise
The Lloyds (LSE: LLOY) share price has been climbing over the past year. It’s up 45% in 12 months. I see that as a very strong performance.
It’s been rewarding for shareholders who have held Lloyds during that time. So why do I still view these as UK shares to buy now? In short, I see further upside potential. Here’s why.
During the pandemic, banks such as Lloyds were prohibited by their regulator from paying dividends. That rule has now been eased. Lloyds is paying out again. It still has some rules on how much it can pay though – and it has been paying the maximum. The bank has indicated that it plans to resume a progressive dividend policy when it can.
Lloyds stayed profitable even during the pandemic. Last year, it recorded a pre-tax profit of £1.2bn. So it generates substantial free cash with which to pay dividends. Additionally, it has been building up a cash pile while it has been constrained from paying dividends. That could help to fund a special dividend in future.
Dividends are only attractive to me if they look sustainable. There’s always a risk dividends will be cut with any share, of course, and that includes Lloyds. But one reason I have confidence in the company is its focused business model. It has a market-leading position in the UK, where it is the leading mortgage lender. That helps make its strategy less complex to execute than some rivals with large global footprints, such as Barclays. It also means Lloyds is primed to benefit from the ongoing buoyancy of the UK housing market.
That focus does also bring a risk though. As it is so tied to the fortunes of the UK economy, any downturn (such as a recession) could lead to declining revenues and lower profits at the bank.
JD Sports’ proven formula
I’d put the second £1,000 of my £2,000 investment pot into JD Sports.
I see the retailer as one of the more attractive UK shares to buy now for my portfolio because of its proven retail formula. The company seems to understand what its customers want, and how to source it at a price that enables a decent profit margin.
The growth has been strong – even the pandemic only slowed growth rather than reversing it. With geographic reach from the US west coast to Australia, JD is rolling its playbook out on a global scale. But its bricks and mortar footprint is only part of its operations. It has a sizeable online presence. JD has embraced digital sales as an opportunity rather than a threat to its shops.
A risk with JD sports is mounting expenses in its globalised supply chain. With ship container costs soaring in recent months and raw material costs also growing fast, input costs could hurt its profit margins.
Christopher Ruane owns shares in Lloyds Banking Group. The Motley Fool UK has recommended Barclays and 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.