Making a decision on where to invest our hard-earned cash can often be a difficult choice – with so many options out there for potential investors.
One of those options is investing in stocks and shares, with the UK’s flagship FTSE 100 index a common place for many to start and maintain their portfolios.
The government has introduced a new incentive for those interested in buying company stocks, known as a Stocks and Shares ISA. These accounts allow individuals to invest up to £20,000 per year and earn tax-free profits – making returns more lucrative than they would be in a standard sharedealing account.
Investors in shares and stocks aim to increase their returns through two main methods – growth in the company’s share price and profits returned to shareholders as dividends.
Some companies will be more generous with their dividends, while others reinvest their profits in the business to help drive further profits in the long term.
Two FTSE 100 companies that I would consider buying based on current dividend yields are J Sainsbury (LSE:SBRY) and Aviva (LSE:AV).
Shares in supermarket kingpin Sainsbury’s have flopped over 2019 after a number of setbacks, most notably the failed merger with Asda which was valued at £7.3bn.
The company recently announced a reorganisation of its portfolio of stores, with 70 Argos branches due to close along with 15 supermarkets and 40 convenience stores.
The restructuring is expected to cut Sainsbury’s debt by as much as £750m. CEO Mike Coupe aims to cut costs in an attempt to improve operating and pre-tax profits, which have declined despite consistent revenue growth.
Sainsbury’s shares offer a dividend yield of 5.3% based on their current share price of 205p, a significant income return before share price growth is even considered. After factoring that in, it trades with a current price-to-earnings ratio of less than 10. I see plenty of upside potential for the supermarket chain if its cost-cutting plans have the desired effect.
Another FTSE 100 dividend favourite that I’d consider adding to my portfolio is insurance company Aviva.
Aviva currently offers a whopper dividend of 8% based on its 375p share price, and with its highly diversified range of insurance products I think there is room for future growth there as well.
The insurer has not had the easiest time of it in the last year, with the shares down more than 20% in the last 12 months. It has not been helped by the news that the Financial Conduct Authority (FCA) is considering the introduction of a series of measures to address competition issues in the UK.
The FCA found that consumers were not getting competitive prices for their home and motor insurance policies and said it will take steps to help loyal customers avoid paying more. While good for the consumer, it may not be great news for the likes of Aviva, Direct Line, Admiral, and many others.
Despite that, Aviva has a strong balance sheet and I believe most of the bad news about the company to be priced in already. Many other FTSE 100 companies will be fretting about the potential chaos from a no-deal Brexit, but Aviva’s strong multinational presence should provide protection against that and with an 8% yield, it’s another I’d add to my portfolio or Stocks and Shares ISA.
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conorcoyle 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.
Motley Fool UK 2019