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Finding the best stocks to buy and start building a winning portfolio can be overwhelming.
If I were in this situation today, I would love to buy. National Network (LSE: NG.) and Imperial Marks (LSE: IMB shares. Here's why.
Energy supply
National Grid is the company that makes sure everyone gets the electricity they need and manages the entire grid.
There are a few key reasons why I think National Grid is a great stock to start with, and also one I would buy and hold as an experienced investor.
Firstly, the company has a monopoly on its operations, meaning that no one else in the UK manages the electricity grid. This is a good thing, as it means it has no competition.
In addition, the company has defensive characteristics. This basically means that demand for its products, in this case electricity, will remain strong no matter what the economic outlook is. After all, no matter what happens, everyone needs energy. This can also help keep earnings and returns for investors stable.
Finally, the fundamentals look good, if you ask me. I'm referring to the valuation and the rate of return they offer. The stock trades at a price-to-earnings ratio of just 11 and offers a dividend yield of over 6%. However, it's worth noting that dividends are never guaranteed.
From a bearish perspective, the biggest issue for me is the potential government intervention to limit payouts to investors due to the company's monopoly. The other is the fact that moving away from traditional fossil fuels for energy will require a significant investment. Spending money in this area could hurt the stock price and affect profitability.
The smokers' corner
There are no points for guessing what Imperial does, as the name gives it away. It is one of the largest tobacco companies in the world with a good dividend track record. In fact, it is what is known as a dividend aristocrat.
You might be wondering why I would buy tobacco stocks right now, when the world, including global governments, are pushing an anti-smoking agenda. For me, the threat of regulatory changes and bans is very real, but I can think of a couple of reasons that I can easily counter that argument with.
For starters, changes in regulations and laws do not happen overnight. These types of laws can take many years, even decades, to be enacted.
Secondly, companies like Imperial have recognised the need to change, and their new tobacco-free alternatives appear to be performing well, boosting profits and keeping returns flowing. However, I will be keeping an eye on the issues mentioned as real risks.
Imperial’s track record and the opportunity for passive income through dividends are hard to ignore. The stock offers a dividend yield of 7.2%. Plus, the stock is cheap, as many investors have shied away from it due to the harmful effects of smoking on health. It currently trades on a price-to-earnings ratio of just eight.
For me, there is still plenty of time and opportunity to make the most of dividend returns and get a portfolio of Imperial Tobacco shares up and running.
