Buying your first shares can be difficult. Even if you’ve opened a Stocks and Shares ISA and deposited some cash, it’s not easy to know where to start. What should your first purchase be?
In this article I’ll suggest three stocks I’d buy for a new portfolio and include some tips on what to avoid.
What should you look for? If you look online, you’ll find plenty of people suggesting that you should put your cash into small companies you’ve never heard of. The promise will be that an upcoming event will trigger a major upwards move in the firm’s share price. You’ll make a stack of cash.
I’d be very wary about such tips. As with everything in life, if it sounds too good to be true, it probably is. In my experience, there’s a high chance you’ll end up losing money if you invest in such stocks.
In my view, the best way to make money from the stock market is keep it simple and play safe. Here’s how I’d do it.
A safe 5.7% income My first pick is oil and gas giant Royal Dutch Shell (LON:RDSa) (LSE: RDSB). The fossil fuel sector is coming under increased environmental pressure at the moment, but most forecasts suggest demand for oil and gas is unlikely to fall for at least another 20 years.
In the meantime, Shell is beginning to reshape its operations to prepare for a lower-carbon future. The company aims to get involved in electricity generation and renewables.
Buying the shares today will give you a forecast dividend yield of 5.7% for the current year. This payout is backed by strong cash generation and an impressive track record — Shell hasn’t cut its dividend payout since World War II.
The shares look reasonably priced to me, on 12 times forecast earnings. The dividend yield of 5.7% is well ahead of the 4.3% average across the FTSE 100. I’d buy.
TV profits could grow Television group ITV (LSE: LON:ITV) is out of favour at the moment but I believe it represents a good buying opportunity for long-term income and growth.
The market is concerned that the broadcaster will struggle to make the shift from advertising-based commercial television to subscription and online services. I think the firm’s performance over the last few years suggests that these concerns are overblown.
Earnings from making and selling programmes accounted for 32% of group profits last year, up from 24% in 2014. ITV plans to launch its own UK-focused subscription service in the near future.
ITV shares have now fallen by nearly 50% from their 2015 highs. The stock now trades on 10 times 2019 forecast earnings, with a 5.8% dividend yield. I think that’s too cheap for such a profitable business. Again, I’d buy.
A buy-and-forget business My final pick is FTSE 100 group Bunzl (LON:BNZL) (LSE: BNZL). I’d describe this business as boring but brilliant. Bunzl supplies its customers with a huge range of small items such as safety, hygiene, packaging and cleaning supplies.
Many of these items are consumable and need regular replenishing. This makes the business a fantastically reliable performer. Bunzl has expanded globally by buying small, local firms in attractive locations and integrating them to provide cost savings and fresh growth.
The shares aren’t cheap, trading on 18 times 2019 forecast earnings, with a not overly generous 2.3% dividend yield. But Bunzl’s profits have doubled since 2013. I see the shares as a long-term buy.
Roland Head owns shares of ITV and Royal Dutch Shell B. The Motley Fool UK has recommended ITV. 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.
Motley Fool UK 2019