With £3,000 to invest, I’d spread the money between three of my top UK shares. And I’d diversify by size with one large-cap, one mid-cap and one small-cap. On top of that, I’d diversify by sector.

My large-cap pick

My pick from the big league is the smoking products maker British American Tobacco (LSE: BATS). The company has a market capitalisation of around £79bn and resides in the FTSE 100 index. 

The business deals in traditional smoking products and new-generation offerings aimed at reducing harmful health effects. And on 9 June, it delivered an upbeat trading statement. And that’s despite being in the process of withdrawing part of its operations from Russia because of the Ukraine war.

Chief executive Jack Bowles pointed to “strong” revenue and volume growth in all three of the firm’s new categories. But traditional smoking products continue to generate much of the firm’s incoming cash flow.

The company has an impressive multi-year record of growing its shareholder dividend. And it’s also buying back some of its own shares. However, it’s possible regulatory changes in the sector could lead to lower dividends in the future.

But with the share price near 3,564p the forward-looking dividend yield is forecast to be around 6.8% for 2023. I see that as attractive, although it’s always possible for any company to miss its estimates.

My mid-cap

My mid-range pick is international banking, investment and wealth management services provider Investec(LSE: INVP). The company has a market capitalisation of around £4.45bn and I can find it in the FTSE 250 index.

The business operates mainly in South Africa and the UK serving private clients with a range of products and services. 

In May, the company delivered a robust set of full-year results. And chief executive Fani Titi said the company is well-positioned to serve its “carefully chosen” client base. And that’s despite the uncertain outlook due to ongoing inflationary pressures and the war in Ukraine.

I reckon uncertainty is what I get with all businesses. And shares have the potential to disappoint as well as to delight me. However, I’m keen on Investec’s chunky dividend and analysts’ estimates of decent growth in earnings ahead. Although estimates are never guaranteed figures.

With the share price near 462p, the forward-looking dividend yield is around 5.7% for the trading year to March 2023. And that tempts me.

And a promising small-cap

For my small-cap company, I’ve chosen Wynnstay (LSE: WYN), the UK-based manufacturer and supplier of agricultural products. It has a market capitalisation of around £128m and is in the FTSE AIM All-Share index.

In May, the company issued a strong trading update. And the directors said they expect full-year pre-tax profits to exceed previous expectations. That’s because the business benefits from higher fertiliser commodities prices. And, again, the effects of the war in Ukraine plus the disruption of supplies from Russia are combining to keep prices elevated. But that could reverse in the future.

Meanwhile, with the share price near 642p, the forward-looking dividend yield is near 2.6% for the trading year to October 2023. That’s not the highest yield of these companies. But I like Wynnstay’s long record of steady annual and rising dividend payments. The compound annual growth rate of the dividend is running at about 5.25%.

Jersey Electric

As its name suggests, market minnow Jersey Electric (LSE: JEL) supplies electricity to approximately 50,000 domestic and commercial customers on the island. Importantly, it’s the only company to do so, making it arguably as defensive as small-cap stocks come. 

As a result of this, Jersey has shown itself to be an extremely consistent dividend raiser (+5% every year).  A total payout of 17.3p per share is expected in FY21. That’s a 2.9% yield; not massive but easily covered by profit.

As one might expect from a solid income payer, however, JEL’s share price performance has been adequate rather than explosive. The stock is up 44% in value since 2016. That’s clearly a whole lot less than other UK shares. So, a danger with JEL is that I wouldn’t get much in the way of capital growth. A valuation of 16 times earnings for a predictable utility stock isn’t exactly cheap either. 

Still, that predictability might suit me down to the ground if income were a priority. If/when markets correct, I can be pretty confident that JEL will recover quickly. That’s exactly what happened last year. 

NWF 

Small-cap NWF Group (LSE: NWF) describes itself as a “specialist distributor of fuel, food and feed across the UK“. Like Jersey Electric, it’s also a brilliantly regular dividend hiker. This potentially makes it another one of the best shares to buy at this end of the market spectrum.

The company is down to return 7.34p per share to holders in FY22, at least according to analysts. That’s a yield of 3.43% at last Friday’s closing price. Some might say that’s not enough given that shares in minnows can be pretty volatile due to their illiquid nature. Margins are also wafer-thin.

In NWF’s defence, its annual payouts are usually very well covered by profits, making them pretty secure. That’s more than you can say for some far larger stocks these days. On top of this, NWT’s shares aren’t expensive relative to the wider market. I could pick some up today for 12 times forecast earnings. 

Wynnstay

Agricultural product manufacturer Wynnstay (LSE: WYN) has shown itself to be admirably predictable when it comes to returning cash to its owners. We’re talking about an average hike of +5%, with the total sum always covered by profits.

A potential 15.2p per share in FY21 would give a yield of 2.7%. That’s the lowest of those mentioned here. However, it’s important to consider the impact of many years of compounding that regular dividends enable.

There are drawbacks, of course. Margins, like those at NWF, are seriously low. And, although performing superbly over the last year (+64%), WYN’s shares are now only back to the level they were in 2016. Like most things in life (and investing), I think balance is key. I would never fill an income-focused portfolio solely with small-cap stocks.

So, while Wynnstay might make a nice addition, I’d aim to reduce volatility by also holding some larger dividend hikers as well. 

A micro-cap stock to watch

One such stock I’ve been considering adding to my portfolio is agricultural supplies company Wynnstay Group (LSE:WYN).

Year-to-date the Wynnstay share price has risen 41%. It’s a small company with a market cap of £96m. The pandemic caused challenges for the business, and Brexit didn’t help matters either. But in the group’s final results for the year ended 31 October 2020, it showed signs of resilience.

Full-year revenue fell 31% year-on-year, partly due to reduced volume in grain trading and other commodities. That’s a high amount, but with the pandemic and Brexit to contend with, it’s not really a surprise.

Despite this, underlying pre-tax profit rose 4% thanks to strong feed sales at the end of the year. But earnings per share fell 10%. Net cash and assets both increased, and the company raised the dividend by 4.3% to 14.6p for the year.

Today the company has a price-to-earnings ratio (P/E) of 17 and dividend yield of 3%.

Positive sentiment building

Wynnstay believes the UK Agriculture Bill presents “significant opportunities”, as farmers are now incentivised for efficiency and environment initiatives. The bill provides a framework to replace outdated legislation and should help support farmers by paying them to produce public goods.

In 2017, the Wynnstay share price reached a high of 650p. If it can return to those levels, it has considerable growth potential ahead. However, climate change is impacting crop success and industrial farming is coming under fire. Technology is making advances into improving farming to reduce its carbon footprint.

Wynnstay has an advisory team to help farmers increase efficiency and productivity. Part of its strategy is following trends in product development, R&D and ultimately enhancing customer performance.

Growing through acquisitions

The Mid-Wales firm is expanding its horizons. It’s just completed the acquisition of two companies to complement its existing set-up. These purchases include the agricultural division of the Armstrong Richardson Group, and the fertiliser manufacturing business and assets of HELM Great Britain.

The Wynnstay share price is currently experiencing a pull-back, so is this a good time to buy? The long-term agricultural outlook does concern me, but we all have to eat and some areas of the world, such as China, are aggressively importing agricultural products to keep up with rising demand. This micro-cap has already enjoyed a nice share price run since the turn of the year, and I think the vaccine rollout gives further encouragement. A P/E of 17 is getting on the high side for a small company, but it’s growing through acquisitions and has a strong presence in the UK farming community. I think Wynnstay is a micro-cap stock to watch, and I’m tempted to buy some of its shares. 

And who doesn’t want to find shares that have the potential to double their money? I suspect it’s the goal of many people. And the beginning of 2021 could prove to be a great starting point for many new portfolio investments.

Some things could help businesses to thrive in the year ahead. For example, the UK’s free trade agreement with the EU frames the ongoing trading relationship between the two entities. And, despite the recent flare-up of the pandemic, there’s been great progress in the fight against Covid-19. Like many people, I’m optimistic the start of the countrywide vaccination programme will prove to be a decisive blow in the battle against the virus.

So, I’m enthusiastic about my share picks for this year. And I reckon the following two stocks have great potential for the next 12 months and beyond.

2 of my best shares to buy now

The FTSE 250’s John Wood (LSE: WG) provides “consulting, projects and operations solutions” in the energy and built environment industries. As such, the business experienced declining earnings over the past few years driven by the downturn in the oil sector.

But City analysts predict double-digit percentage growth in earnings this year following a similar uplift in 2020. And the recovery in the oil industry is helping the progress along with the company’s strategic plan to focus operations on “differentiated, higher-margin business”. There was an example of the plan in action in November when the company announced the completion of the sale of its joint venture interest in TransCanada Turbines for a cash sum of $67m.

I reckon the firm’s portfolio optimisation programme could combine with general economic recovery in 2021 to propel the shares higher. With the stock near 323p, the forward-looking earnings multiple for 2021 is just below 16.

Meanwhile, Wynnstay (LSE: WYN) is a smaller business with a market capitalisation just below £70m. But despite its size, the agricultural supplies company has a stable trading record and has been good at raising shareholder dividends incrementally over the past few years. With the share price near 344p, the forward-looking yield is just above 4.3% for the trading year to October 2021.

This one could be a Brexit winner

City analysts expect steady single-digit advances in annual earnings ahead. But the valuation is undemanding with the earnings multiple for next year running near 10. And the shares were as high as 650p in the spring of 2017. Back then, Wynnstay was posting double-digit percentage annual increases in earnings. So, it seems the stock has re-rated down to reflect the current growth rate.

I reckon the pandemic is making life difficult for the business right now. But Wynnstay’s position as “an essential supplier to the farming community” means it’s well placed to serve what could be a growing industry in Brexit Britain. It wouldn’t surprise me to see the outlook improve and the valuation re-rate back up as 2021 unfolds.

Today I’m going to take a look at three of these companies. I think they could be the perfect stocks to own for investors looking to protect their portfolios from another market decline. 

UK shares to own

Small-cap Wynnstay (LSE: WYN) might fly under the radar of many investors, but the company has performed well this year. The business provides farmers with agricultural products and helps organisations manage logistical problems. 

Demand for both of these services remained high throughout the coronavirus lockdown. This helped the company weather the stock market crash. I think it is highly likely that the demand for Wynnstay’s services will continue to grow in the long term. 

At the UK’s population grows, demand for food will continue to increase, and the country is under increasing pressure to produce more food at home. As one of the only publicly listed farm supply companies, Wynnstay could be one of the best UK shares to play this trend. 

Stock market crash bargain

Shares in power group Drax (LSE: DRX) slumped in the stock market crash.

However, the company provides a critical service for the UK. It’s one of the largest power plant operators in the country. Even at the height of the coronavirus lockdown, consumers were still using electricity. Thanks to this steady demand, the firm’s earnings are expected to decline by just 3% in 2020. 

Still, despite this bright outlook, the stock looks cheap compared to other UK shares. It is currently changing hands at a price-to-earnings (P/E) ratio of 9.5. On top of this, it supports a dividend yield of 6%. 

As such, due to the group’s income potential and defensive nature, I think it could be worth buying the stock as part of a diversified portfolio today while its trades at a low level.

Ferrexpo

Ferrexpo (LSE: FXPO) is one of the world’s largest iron ore producers. Shares in the company performed relatively well in this year’s stock market crash thanks in part to the group’s international diversification. 

In my opinion, this diversification should help the business stage a strong recovery in the years ahead. Countries around the world are planning to spend hundreds of billions of dollars over the next few years to stimulate their economy after the coronavirus pandemic. This could send the demand for iron ore skyrocketing, as infrastructure spending takes centre stage. 

Ferrexpo could be one of the best UK shares to play this trend. As of yet, the market does not seem to have cottoned on to the company’s potential.

It is changing hands at a forward P/E multiple of just five. Investors may also be entitled to a 6% dividend yield, according to current analyst projections. 

All in all, as a stock market crash bargain, I think it is worth taking a closer look at Ferrexpo. 

The only problem with this strategy is that the coronavirus pandemic has forced many companies to withdraw their cash payouts. Many, but not all. Today, I’m going to look at two minnows that continue to offer very tempting dividends and also trade on low valuations. 

Cash ISA beater

I doubt many private investors are familiar with Wynnstay (LSE: WYN). Let me bring those of you up to speed. This firm manufactures and supplies agricultural products, such as animal feeds, fertiliser, and seeds. It also operates rural outlets, serving farmers and pet owners.

Rather conveniently, the £55m-cap also reported to the market last week. At £229.3m, revenue was 12% lower in the six months to the end of April, compared to the same period last year, as a result of commodity price deflation.

Nevertheless, adjusted operating profit rose 8% to £4.78m, with reported pre-tax profit up 4% to £4.3m. This was deemed a “resilient” performance by management in light of “exceptionally challenging market conditions.“

According to CEO Gareth Davies: “Wynnstay’s broad spread of agricultural activities is a significant strength, acting as a natural hedge against sector variations.” Even so, the company believes the rest of the year is likely to be tough going, due to the pandemic and Brexit-linked uncertainty. No real surprise there.

Now, what about those dividends? The confirmed interim payout of 4.6p per share might be the same as last year. But the fact the company is willing to pay up in this market environment, gives me confidence. Analysts are forecasting a total return of 14.2p per share in FY20, giving a stonking yield of almost 5.3%.

It’s also worth highlighting that Wynnstay trades on just 9 times earnings. While this may reflect ongoing threats and wafer-thin margins, I’d feel more comfortable taking a risk here than accepting the chicken feed offered by a Cash ISA.

Another dividend delight

Actuarial, consulting, and administration business XPS Pensions Group (LSE: XPS) may not quicken the pulse, but it’s another great small-cap dividend pick, in my view.

Like Wynnstay, it announced numbers to the market last week. Through a combination of new client wins and a boost from acquisitions, total revenue rose 9% to just under £120m in the year to the end of March. Pre-tax profit came in flat at £11.1m.  

I suspect XPS has just what a lot of investors want right now. Thanks to the essential nature of its work, earnings visibility is high. Moreover, the company suspects the pandemic is likely to increase demand for additional services over the short term.

That said, XPS has also said it could lose some earnings momentum. That’s if discretionary projects are deferred by trustees and new business opportunities continue to slow. A similarly mixed outlook then.

And the dividends? A total payout of 6.6p may be the same as the previous year, but this still gives a very satisfying trailing yield of 5.6%. I’d expect something similar in FY21.

Again, the shares aren’t expensive. XPS trades on just 11 times forecast earnings. 

Improving performance

Reporting on Monday was technical fluid power products distributor, Flowtech Fluidpower (LSE: FLO). The company reported a rise in revenue during the first half of the current year of 24.7%. This was driven by the continued momentum experienced across all of its business divisions, as well as the positive contribution from acquisitions.

The Flowtechnology division increased revenues by 6.8%. It recorded strong organic growth in difficult trading conditions. It also benefitted from the performance of Indequip, which was acquired in February 2016. The company’s Power Motion Control division increased revenues by 53.7%, with recent acquisitions and organic growth combining effectively.

Looking ahead, the company is on target to meet expectations for the full year. It also announced today the acquisition of Orange County Limited, which is an exclusive UK supplier and distributor of storage equipment. This could contribute positively to the company’s future performance, while other acquisitions look set to form part of the firm’s pipeline.

With Flowtech Fluidpower forecast to record a rise in earnings of 29% in the current year, it seems to offer upside potential. This is enhanced by a price-to-earnings growth (PEG) ratio of just 0.4, which suggests that now could be the right time to buy a slice of the business for the long term.

Return to growth

Also offering the prospect of share price growth is Wynnstay (LSE: WYN). The supplier of products and services to the agricultural sector has experienced a couple of challenging years, with its bottom line forecast to decline in the current year by 3%. This could lead to a rather disappointing performance from its share price in the short run after its 0% return since the start of the year.

However, looking ahead to next year the company is due to return to high levels of growth. Its earnings are forecast to increase by 10% next year, which puts its shares on a PEG ratio of 1.8. Beyond 2018, more growth could be on the cards as the company’s strategy may continue to bear fruit.

In addition, Wynnstay could become a more enticing income share over the medium term. Its dividends are currently covered 2.3 times by profit, which suggests they could increase at a faster pace than profit and leave the company in a strong financial position. Therefore, while the stock may only yield 2.3% right now, its yield may increase in future and become more enticing to a wide range of investors as inflation moves higher.