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I FTSE 100 is a great place to find stocks, regardless of your investment strategy. Whether you’re looking for growth or capital gains, or high yield income gains, UK blue-chip shares can give you what you’re looking for.
But here’s the thing: some of the top FTSE 100 stocks offer a good combination of growth, income, again amount of money. Severn Trent (LSE:SVT), HSBC (LSE:HSBA) and Legal & General (LSE:LGEN) are three such stocks that I am considering for my ISA and I think others would too. Read on to find out more.
Total amount
Utility stocks are not famous for their growth potential. But Severn Trent is providing this repeatedly, with its £15bn long-term investment plan rapidly expanding its asset base and ability to grow profits.
Is this reflected in the company’s valuation? I don’t think so – its forward price growth (PEG) ratio sits just inside the price zone of 1 and below, at 0.9. City analysts expect wages to rise 18% this fiscal year.
With Severn Trent’s dividend yield of 4.2% it gives you a lot of bang for your buck, in my opinion.
What I also like is that water supplier jobs are very protective, providing strong income visibility. Keep in mind that rising interest rates can make borrowing costs higher, though.
Another top benefit?
HSBC is enjoying positive momentum as its emerging markets grow rapidly. Analysts have been steadily raising their earnings and share price forecasts following the bank’s better-than-expected Q4 performance. I think this can go on.
Currently earnings are expected to increase by 12% by 2026. It reflects the strong performance of the bank’s ongoing restructuring plan, as well as its large structural opportunities in Asia. RBC analysts, for example, note that “Asian wealth is a key growth area for HSBC which should continue to drive additional revenue in the medium term.”
HSBC’s forward PEG ratio is also an ultra-low 0.4. And its dividend yield to 2026 is 4.6%, surpassing the 3% average for FTSE 100 stocks. Traditional Asian banks like these are facing increasing competitive threats. However this is always a blue chip to consider.
FTSE-leading dividend
Legal & General is one of the most overvalued stocks in the FTSE 100, in my opinion. Its forward price-to-earnings (P/E) ratio is 8.7 times, while its PEG is 0.9. Meanwhile, this year’s dividend yield is the highest in the index, reaching 8.8%.
Low earnings multiples and sky-high yields are sometimes a red flag for investors. It may be a sign of a company in trouble, or that a dividend cut may be imminent. Is this the category of Legal & General shares you belong to?
I don’t believe it. First, the company makes a lot of money and has a large amount of cash. Solvency II’s leverage ratio remains at a whopping 210%, supporting current equity valuations. It also has important growth initiatives to draw on, as the world’s aging population drives demand for financial products.
Statutory and general revenue is expected to increase by 10% by 2026. I am optimistic about these predictions, although the fallout from the Iran War creates some uncertainty.
