If you’ve £5,000, or any other amount, to invest today, buying a basket of FTSE 100 companies could be the best place to stash your hard-earned cash. Indeed, buying a basket of high-quality UK shares is a tried a tested way of building wealth over the long term.
Here are two blue-chip stocks I think have the potential to yield large total returns for investors.
UK shares to buy
One of the most defensive FTSE 100 stocks, in my opinion, is water group United Utilities (LSE: UU). The company provides water and wastewater services for 3m homes and businesses in the North West. It also owns hundreds of reservoirs and millions of kilometres of pipework. These assets enable the group to provide its service to customers.
It’s taken United Utilities decades to develop its network. This gives the business a defensive nature and competitive advantage. It’s unlikely a new company will be able to come in and take market share. Doing so would cost a significant amount of money, and require approval from regulators.
As such, I think United is one of the best UK shares to own as part of a diversified buy-and-forget portfolio. It’s a guaranteed income stream from its defensive assets, and people will always need water. This constant demand should help support the group’s 5% dividend yield for decades to come.
FTSE 100 income buy
Pennon Group (LSE: PNN) has similar qualities to United Utilities. It owns and operates a network of water assets, which would be difficult to replicate. This also gives the company a defensive income stream from operations that are relatively predictable. Few other UK shares offer the same quality.
A predictable income stream is an excellent quality for an income stock. If a company knows roughly how much money it’s going to receive from customers every year, it can plan its dividend to investors more effectively, balancing capital spending and cash returns.
The FTSE 100 stock’s returns over the past decade stand testament to this strategy. Over the past 10 years, shares in the utility group have outperformed the blue-chip index by 3.5% per annum. I think it’s highly likely the stock will continue to outperform other UK shares, thanks to its defensive income stream and strong balance sheet.
The company’s dividend to investors is also extremely attractive, especially in the current interest rate environment. The stock currently supports a dividend yield of 4.3%.
Therefore, if you’re looking to invest some of your hard-earned money into the stock market, I think it could be worth taking a closer look at Pennon and United Utilities. Both companies have a strong competitive advantage, strong balance sheets, and support market-beating dividend yields.
I think these qualities will help these stocks produce high total returns for investors in the decades ahead when owned as part of a diversified portfolio of UK shares.
The post £5k to invest? I’d buy these FTSE 100 UK shares appeared first on The Motley Fool UK.
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Rupert Hargreaves does not own any share mentioned. The Motley Fool UK has recommended Pennon 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.
Motley Fool UK 2020