The stock market can seem very confusing when you are just starting out. Most of the time, you don’t know where to start.
When I first started investing, I didn’t really know what I was doing and I invested in companies without doing the proper due diligence, which unfortunately led to me losing money on some of my early investments.
But over time, as I learned more about the stock market, I found the strategy that works best for me: currently, I focus primarily on buying high quality companies. FTSE 100 and FTSE 250We target companies that we believe will deliver healthy profits over the years or even decades, and that have a clear understanding of their business model and how they generate revenue.
If I were to start again, there’s one stock I would consider buying if I had the cash to invest.
Unilever
The business in question is Unilever (LSE: ULVR). The stock has had a fantastic start to the year, rising 11.7% which means it has outperformed the FTSE 100, which is up 6.7%.
When I’m considering investing in a company, there are a few things I check first. First, how cheap is the stock? Unilever shares are trading at 19.6 times earnings, which may seem expensive compared to the Footsie average of 11 times.
However, that’s below Unilever’s historical average of 25, which means the stock could be worth something today.
Secondly, does it pay dividends? Dividends are a form of profit distribution that companies use to reward shareholders. Unilever has a dividend yield of 3.5%.
This is nowhere near the FTSE 100’s all-time high. Vodafone It takes the crown with a 10.2% yield. But there’s a reason why I prefer Unilever’s dividend to that of, say, Vodafone.
That’s because a company hasn’t cut its dividend in over 50 years. Dividends are never guaranteed. Companies can cut their dividends or cut them completely without notice. We’ve seen this happen during the pandemic.
So, this track record gives us confidence that the company is committed to returning profits to shareholders and will continue to do so in the future.
risk
Investing involves risks and in Unilever’s case, I think there are some challenges.
The biggest problem is the fact that it faces stiff competition from low-cost retailers such as Aldi, which sell premium products that often come at a steep cost to Unilever.
So many people struggling with the rising cost of living may turn to more affordable options, as Aldi has aggressively expanded its market share in recent years.
Pricing Power
That said, I still like the outlook for Unilever shares, and although the company faces competition, it has recently demonstrated strong pricing power.
Last year, the company’s underlying sales rose 7% despite a 6.8% price increase, indicating strong demand for its products.
like that, Barclays The firm recently raised its target price on the shares from 5,000p to 5,200p, which is 21.5% above the current price.
The article New to the stock market? Kick off your investing journey with these Footsie favourites originally appeared on The Motley Fool UK.
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Charlie Keough has invested in Barclays Plc. The Motley Fool UK recommends Barclays Plc, Unilever Plc, and Vodafone Group Public. Views expressed on companies mentioned in this article are those of the author and may differ from official recommendations we make in subscription services such as Share Advisor, Hidden Winners or Pro. At The Motley Fool, we believe considering a diverse range of insights makes us better investors.
Motley Fool UK 2024
