For a new investor, buying UK shares can be a daunting experience. I may instantly recognise some of the names – Barclays, Tesco, Aston Martin – but there are probably hundreds of others I’ve never heard of.
Also, there is the nagging question of just how much cash I need to start investing. £5,000? £10,000?
Back in the day, investors would need a big lump to justify the sizeable broker fees involved. And these would eat into returns.
Indeed, there was a book published around this subject in 1940 called Where are the customers’ yachts? Spoiler alert: there weren’t many yachts while most brokers did very well.
These days, however, investing has been truly democratised. The proliferation of online brokerage platforms, many of which don’t impose dealing charges, means investors can easily get going with £1,000.
So, if I were embarking on my investing journey today, what would I buy?
High-yield share
One FTSE 100 stock that I own and am looking to buy more of is insurance group Aviva (LSE: AV.).
The company has been simplifying its operations over the last couple of years. This has involved disposing of non-core or underperforming businesses, mainly overseas.
As a result, it’s a much leaner and more focused company with a strengthened balance sheet.
In 2023, group operating profit rose 9% year on year to £1.46bn. It intends to grow this to £2bn by 2026.
Meanwhile, a £300m share buyback has been launched and the dividend was raised by nearly 8% to 33.4p per share.
At today’s share price of 495p, that translates into a dividend yield of 6.7%. That’s well above the 3.8% cash yield of the FTSE 100.
While no dividend is ever truly guaranteed, Aviva is aiming to grow its payout by mid-single digits on average each year. Here are the dividend forecasts.
|
Financial year |
Dividend per share |
Dividend yield |
|
|
2025 (forecast) |
38.0p |
7.7% |
|
|
2024 (forecast) |
34.7p |
7.0% |
|
|
2023 |
33.4p |
6.7% |
If I invest today, I could expect around £191 in dividends from my £1,000 worth of shares over the next couple of years.
Finally, the shares are cheap, trading at just 11 times forecast earnings.
Private healthcare boom
Now, as mentioned, the company has been selling off assets, notably in Asia. However, some of these less mature markets were expected to offer exciting long-term growth. So sluggish growth in its remaining markets (mainly the UK) is a potential risk.
That said, I’ve been encouraged by Aviva’s ability to find growth domestically. The most recent example here has been the boom in individuals and businesses signing up for private healthcare insurance.
In fact, sales in this business rose 41% last year as NHS waiting lists reached record highs. The backlog is expected to fall from 7.5m but stay above pre-Covid levels until 2030, according to the Institute for Fiscal Studies.
Therefore, this remains a large market opportunity for Aviva.
Building a portfolio takes time
In summary, I reckon this stock could provide a solid portfolio foundation. I’d get broad exposure to the UK insurance industry, with high-yield dividends thrown in, and the chance for share price growth.
All I’d need to do then is build out my portfolio gradually over time, adding in different sectors.
The post I’d invest my first £1,000 in these cheap UK shares today! appeared first on The Motley Fool UK.
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Ben McPoland has positions in Aviva Plc. The Motley Fool UK has recommended Barclays Plc and Tesco Plc. 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 2024
