Buying shares for the first time can be a daunting experience. However in my opinion, the key is to focus on putting together a portfolio of high quality companies that pay regular dividends with the intention of holding these companies for the long term and allowing compounding to work its magic. With that in mind, here’s two stocks I believe could be excellent choices for beginners.
GlaxoSmithKline
GlaxoSmithKline (LSE: GSK) has excellent potential as a starter stock to my mind, as the world’s ageing population should provide significant tailwinds to the healthcare industry over the medium-to-long term and the healthcare giant looks well placed to benefit.
The company is currently undergoing a transition period, with management deciding to focus less on blockbuster drugs and more on vaccines and consumer health products. After an asset swap with Novartis in 2015, 45% of revenue now comes from selling products such as Beechams Cold & Flu and Sensodyne toothpaste, and the new business model should result in more stable and consistent revenues and cash flows.
GlaxoSmithKline’s dividend yield of 5.1% is one of the higher yields in the FTSE 100 and while there has been some concern in recent years as to whether this is sustainable, with earnings forecast to rise 40% and 10% for FY2016 and FY2017, the chances of a dividend cut are looking less likely to me.
After trading as high as 1727p in October last year, the shares have fallen 10% in the last few months to now trade at 1,560p and at this price, with a P/E ratio of a reasonable 15.4, they look good value. For those new to investing, I believe GlaxoSmithKline has strong potential as a core holding.
The City of London Investment Trust
The City of London Investment Trust (LSE: CTY) seems like another ideal beginner’s stock for the main reason that, although the trust trades like a regular share, it’s actually a portfolio of around 120 companies, thus offering fantastic diversification benefits and a low risk profile.
The trust’s objective is to provide long-term capital and income growth and it places a strong focus on rewarding shareholders with regular dividend payouts. The current yield is approximately 4% and incredibly, the dividend has been increased every year since 1966.Â
Fund manager Job Curtis takes a cautious approach to investing, mainly going for equities on the London Stock Exchange, and the top five holdings include blue-chip names such as Royal Dutch Shell, British American Tobacco, HSBC, BP and Diageo. The trust is however allowed to invest in smaller FTSE 350 companies and therefore has access to companies with higher growth potential.
Bear in mind that as a portfolio of 120 stocks, it’s likely to rise and fall with market fluctuations and with market turbulence never too far away, there’s no guarantee that an investment in the City of London Investment Trust will be smooth sailing. However it has weathered many economic events and plenty of market turmoil through its conservative investment strategy, returning an annualised 12% per year over the last five years. As such I believe it’s an excellent choice for new investors looking to dip their toes into the market waters.