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2 of the top UK shares I’d buy now

·3-min read
Pen next to sheet of paper

When it comes to selecting fast-moving consumer goods companies on the London stock market, Unilever (LSE: ULVR) is always near the top of the list for me. The business owns an impressive stable of well-loved brands. And they drive the firm’s consistent cash flow, which is ideal for fuelling a rising stream of shareholder dividends.

A positive outlook and steady progress

The outlook is positive. And Unilever continues to make operational and strategic progress. However, the one big challenge for new potential shareholders now is the often high-looking valuation. Right now, with the share price near 4,250p, the forward-looking earnings multiple is just below 19 for 2022. And the anticipated dividend yield is around 3.6%.

But Unilever has a long, multi-year record of incremental annual rises in cash flow and dividends. And the business scores well across a range of quality indicators, making it a stock I’d like to own for the long term.

I’d be inclined to accept the rich valuation as a mark of quality and justify my stock purchase by the return from the dividend yield. However, at this level, it would be easy for me to lose money on the stock. After all, City analysts expect only modest single-digit earnings advances in earnings ahead. And it wouldn’t take much for those earnings to slip below target. If that happens, Unilever could re-rate lower.

Nevertheless, as part of a diversified long-term portfolio, I think Unilever is a good fit, and I’d be inclined to buy the stock on dips and down-days. The share is still trading below the highs of last year, so I’d look closely at it now.

Reinvesting for growth and rising earnings

Paper-based packaging products maker Smurfit Kappa (LSE: SKG) has been expanding its international operations. The company is good at reinvesting in its operations to accommodate growth. And there’s also an active acquisition programme.

An announcement in early June indicated the type of bolt-on purchase Smurfit Kappa is good at making. In this case, the company purchased a firm called Cartones del Pacifico, a leading paper-based packaging company in Peru.

And City analysts expect the company’s efforts to show up in advancing earnings in the years ahead. For 2022, they’ve pencilled in an increase of almost 16%. And if the business achieves that figure, the forward-looking earnings multiple will be just over 15 with the share price near the current 3,943p. Meanwhile, the anticipated dividend yield will be around 3.2%.

A tailwind in the sector

That valuation looks fair to me. After all, Smurfit Kappa is another business with a long, multi-year record of rising cash flow and shareholder dividends. Although earnings and dividends did take a temporary hit because of the pandemic.

I like the sector. And the company seems to be operating with a tailwind because of powerful demand from e-commerce and from the fast-moving consumer goods industry. It seems today’s world is placing ever-increasing pressure on the packaging industry to deliver.

To me, Smurfit Kappa’s steady expansion is attractive. Although the company faces competition from other players that could help to derail earning expectations in the future. Nevertheless, I’m inclined to embrace the risks and add this stock to my diversified portfolio of long-term positions.

The post 2 of the top UK shares I’d buy now appeared first on The Motley Fool UK.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

Motley Fool UK 2021

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