With that in mind, here are two large-cap shares that could provide a far more attractive income return than a Cash ISA. They may also be able to offer capital growth potential as a result of their valuations.

BAE Systems

While the prospects for the defence sector have improved in the last couple of years, the share price of BAE Systems (LSE: BA) has moved lower. In fact, it has declined by 23% in the last year, which suggests that investors are downbeat regarding its financial prospects.

Of course, the company relies on Saudi Arabia for a large part of its sales and profit. Although BAE’s recent update showed that it has exposure to a variety of other markets, its near-term performance could be significantly impacted by an increase in the geopolitical risks facing the country. As such, the risk of capital losses remains in place in the short run.

However, with the company having reported relatively stable financial performance over the last decade, it seems to be in a stronger position than many of its sector peers. As defence industry spending is forecast to rise at an increasing pace over the next handful of years, the stock could enjoy improved operating conditions. As such, with a dividend yield of 4.8% that is covered twice by profit, it seems to have an attractive risk/reward ratio.

Micro Focus

While Micro Focus (LSE: MCRO) may not appear to be an obvious choice for income-seeking investors, the company’s 3.5% dividend yield could become increasingly attractive over the long run.

In its recent update, the international software product group reported that it is making progress in delivering its turnaround plan. It is rationalising its asset base, while also seeking to return cash to shareholders where possible through dividends and share buybacks. Alongside this, the business is aiming to reduce leverage in order to offer a less volatile long-term shareholder experience.

With dividends being covered twice by profit, it seems to offer relatively high headroom compared to some of its index peers. Since the stock is forecast to post a rise in earnings of 4% in the current year, it could offer fair value for money while it has a price-to-earnings (P/E) ratio of 14.4.

Clearly, there are less risky income investing opportunities in the FTSE 100 than Micro Focus. But with the stock having continued recovery potential, it could be appealing for less risk-averse investors.

The post Why I’d ditch a Cash ISA and buy these 2 FTSE 100 dividend stocks right now appeared first on The Twelfth Magpie.

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• Should investors consider buying BAE Systems shares now they’re back below £20?
• BAE shares are falling: opportunity or warning?

Peter Stephens owns shares of BAE Systems and Micro Focus. The Motley Fool UK has recommended Micro Focus. 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.

Among them is defence business BAE (LSE: BA). It released a trading update on Thursday which confirmed it is performing in line with guidance. However, it’s not the only FTSE 100 dividend share that could be worth buying right now.

Low valuation

With a dividend yield of 6.5%, pensions specialist Legal & General (LSE: LGEN) has an income return that is 50% higher than that of the FTSE 100. The company’s recent performance has been relatively strong, with it being able to report encouraging figures despite an uncertain operating environment.

Looking ahead, there is scope for growth in its dividend. It is covered 1.8 times by profit, and has a track record of delivering impressive increases. For example, in the last four years it has risen at an annualised rate of 10%. Since the company is expected to post a rise in earnings of 4% in the current year, further inflation-beating income growth may be ahead.

Despite its solid track record of dividend growth and its strong position within a growing industry, Legal & General’s shares trade on a price-to-earnings (P/E) ratio of just 8.5. This suggests that they offer a wide margin of safety, and may be able to post FTSE 100-beating growth and income prospects over the long run. Therefore, now could be an opportune moment to buy the stock.

Growth potential

BAE’s trading update showed that the company is continuing to perform as per previous expectations. Although it is on track to meet guidance for the full year, the company faces an uncertain near-term outlook. Much of this is derived from the prospect of further geopolitical uncertainty regarding Saudi Arabia, which is a major customer of the business.

Investors, though, appear to have factored in the risks facing the company, since it trades on a P/E ratio of 10. Moreover, its update showed that it is making progress in its UK programmes, with its Air and Maritime contracted positions progressing as expected. There is also positive funding momentum in the US, with the company’s portfolio being well-aligned with customer priorities and growth areas.

In terms of BAE’s income prospects, it may lack the stability of some of its FTSE 100 peers due to it having an uncertain near-term outlook. However, a 5.1% dividend yield that is covered twice by profit suggests that the company’s dividend outlook is perhaps more robust than investors are pricing in. As such, while the company’s shares trade at a low ebb, its financial performance remains encouraging, so now could be the right time to buy a slice of the business for the long term.

The post The BAE share price isn’t the only cheap FTSE 100 dividend opportunity I’d buy today appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of BAE Systems and Legal & General Group. The Motley Fool UK has no position in any of the shares mentioned. 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.

If you’re looking to invest your first £2,000, you’ll probably be considering which companies could lay strong foundations for a successful portfolio. Here, I’ll tell you how I’d approach the question, and about two starter stocks I’d be happy to buy today.

Narrowing the field

I’d begin by looking to the FTSE 100 for well-established businesses that have stood the test of time.

I’d also narrow down my focus to more ‘defensive’ industries. That’s to say, industries that are more resilient through the ups and downs of economic cycles. I’d want to build my experience a bit before considering highly cyclical businesses like banks and housebuilders.

And within defensive industries, I’d look to those with long-term ‘structural’ growth drivers. That’s to say, those where the broad backdrop for the future is positive. Again, I’d want to build my experience a bit before considering stocks in industries that may be in long-term structural decline, such as tobacco.

The healthcare and defence industries fit my bill. Ageing populations in the developed world, and rising wealth in developing economies, provide long-term structural drivers for growth in healthcare. Meanwhile, the world’s long history of geopolitical conflict is never likely to end, which means continuing demand for the products and services of the defence industry.

If I were starting out today, I’d split my first £2,000 investment between healthcare company Smith & Nephew (LSE: SN) and defence firm BAE Systems (LSE: BA).

Worth every penny

Smith & Nephew is a global business, with leadership positions in Orthopaedics (45% of revenue), Sports Medicine (31%) and Advanced Wound Management (24%). Recent acquisitions have further strengthened its leadership positions, and can be expected to accelerate growth over time.

As it is, it’s growing nicely in developed markets (a 2.2% increase in Q1 revenue reported today) and particularly strongly in emerging markets (a 15.3% increase). Management now expects revenue growth for 2019 to be in the upper half of its guidance range — which is good — but it’s the long-term prospects for the business that convince me it’s a great core holding for a starter portfolio.

The share price is 1,520p, and for a company with leadership positions in its fields, and structural drivers for industry growth, I think the premium rating of near to 20 times forecast 2019 earnings, with a 2% dividend yield, is worth every penny.

Currently cheap

BAE Systems will be well known to most people. Its big contract wins with the Ministry of Defence and major allies in the western world regularly make the national news. As well as producing heavyweight kit for the defence of air, sea and land, the group’s other activities include cyber security and intelligence.

There’s some uncertainty at the moment about the future of BAE’s trading relationship with Saudi Arabia (18% of its revenues), due to political tensions over the war in Yemen and the killing of dissident journalist Jamal Khashoggi. However, again, it’s the long-term prospects of this world-class business that are the big appeal to me.

The current uncertainty may be part of the reason why you can buy the shares today at 487p — less than 11 times forecast 2019 earnings, with a 4.8% dividend yield.

The post Investing your first £2k? Here are 2 FTSE 100 stocks I’d buy today appeared first on The Twelfth Magpie.

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• Should investors consider buying BAE Systems shares now they’re back below £20?
• BAE shares are falling: opportunity or warning?

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

While this could mean there are challenges ahead for the company, its low valuation and the growth potential offered by the wider defence sector could lead to a share price recovery. As such, it could be worth buying alongside another potential turnaround play that released a trading update on Tuesday.

Improving prospects

The stock in question is corrugated and plastic packaging specialist DS Smith (LSE: SMDS). Its trading update for the 2019 financial year showed it’s performed in line with expectations. It has seen further growth in corrugated box volumes and market share gains, driven by its strong position in the e-commerce packaging market.

There’s been strong growth in the UK, Italy and Poland, while all the company’s regions have delivered growth. It expects to make further progress on margins, while its US business is beating expectations following its acquisition. Further M&A activity has the potential to improve its efficiency, as well as deliver stronger profit growth over the medium term.

With DS Smith’s share price having declined by 27% in the last year, it now has a price-to-earnings growth (PEG) ratio of 1.7. This indicates it offers good value for money, given that it’s delivered positive earnings growth in each of the last five years. Therefore, a recovery could be ahead for the company over the long run.

Low valuation

While BAE has highlighted the potential for difficulties in servicing demand from Saudi Arabia as a result of geopolitical challenges, the company is expected to post a rise in earnings of 9% in the current year. After its share price fall, it trades on a price-to-earnings (P/E) ratio of just 10.6, which suggests it has a wide margin of safety when its forecast growth rate is taken into account.

The defence industry is expected to experience a period of intense growth over the medium term. A robust outlook for the world economy, coupled with continued geopolitical risks across a variety of regions, means defence spending may experience an upturn after a period of slow growth in response to he impact of the financial crisis.

With the company having a large backlog of orders, as well as major customers other than Saudi Arabia, its financial outlook may be more robust than the stock market is currently pricing in. As such, there could be an opportunity for value investors to buy shares in BAE at a time when it seems to be trading significantly below its intrinsic value.

The post Why I believe FTSE 100-member BAE’s share price could return to 675p appeared first on The Twelfth Magpie.

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• Should investors consider buying BAE Systems shares now they’re back below £20?
• BAE shares are falling: opportunity or warning?

Peter Stephens owns shares of BAE Systems. The Motley Fool UK has recommended DS Smith. 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.

Therefore, alongside another growth share which released results on Tuesday, now could be the time to buy it.

Improving prospects

The company in question is digital communications specialist Next Fifteen (LSE: NFC). Its 2019 results showed a rise in net revenue of 14% to £224.1m, while adjusted profit before tax increased by 23% to £36m. The company was able to deliver significant client wins during the period, while its net debt level has more than halved to just £5.2m.

It has continued to make progress in the delivery of its strategy. It anticipates that it could be in a strong position to add value to companies which struggle with the impact that technology is having on their own business models.

With Next Fifteen forecast to post a rise in earnings of 8% in the current year, it appears to be performing well. The world economy’s growth outlook remains relatively robust, while the investment it is making in its platform of businesses and products could help it to adapt to constant change in a number of key markets. As such, with a price-to-earnings (P/E) ratio of 15.6, it could offer investment potential for the long run.

Growth potential

As mentioned, the BAE share price has experienced a turbulent period in recent months. There are concerns regarding one of its largest customers, Saudi Arabia, with it being possible that the company may not be able to fully service demand from the country for its products as a result of geopolitical risks. While this uncertainty persists, the company’s shares could continue to lag a number of other defence stocks.

However, the result of its share price fall is a low valuation. It now trades on a P/E ratio of just 10.4, which suggests that it offers a wide margin of safety. It is due to post a rise in net profit of 8% in the current year, while further strong growth could be ahead over the long run. In fact, the global defence industry is expected to step up in its growth rate after a decade of slow growth. This could provide improved operating conditions for businesses across the sector.

While buying any stock during an uncertain period can mean additional risk, it may also equate to higher potential returns. Since BAE has a strong position in what is a fast-growing market, its long-term investment prospects appear to be bright. With bottom-line growth of 8% forecast for the current year, it could deliver improving share price performance in the coming years.

The post Got £1,000 for a Stocks and Shares ISA? I’d buy the BAE share price today appeared first on The Twelfth Magpie.

More reading

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• 1 FTSE stock tipped to handily outdo Rolls-Royce shares by 2027
• Forget SpaceX, here are 3 UK tech stocks to consider buying without the high price tag
• Should investors consider buying BAE Systems shares now they’re back below £20?
• BAE shares are falling: opportunity or warning?

Peter Stephens owns shares of BAE Systems. The Motley Fool UK has recommended Next Fifteen Communications. 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.

In contrast, buy-to-let could experience further tax changes, while housing affordability may remain challenging for first-time buyers. As such, now could be the right time to buy the defence stock in my opinion alongside another industrial company which released an encouraging update on Wednesday.

Consistent performance

The stock in question is technical products and services specialist Diploma (LSE: DPLM). Its first quarter trading update showed that it has been able to trade in line with expectations. Revenue in the period increased by 9%, while its operating margin was as per expectations.

The company’s Life Sciences sector delivered sales growth of 4%, also recording encouraging growth across several revenue streams. Its Seals segment reported 2% sales growth which was driven by strong trading in its international business. Its Industrial OEM (original equipment manufacturer) business was hit by delays in deliveries, although demand remained robust during the quarter. In its Controls segment, revenue increased by 24% as a result of previous acquisitions.

With Diploma having recorded five successive years of earnings growth, it appears to offer a robust financial outlook. It is expected to deliver a 9% rise in net profit in the current year, and this could help to improve investor sentiment. With the company also reporting a change in CEO alongside its trading update, it could record improving financial performance over the long term.

Low valuation

Also offering improving financial prospects is BAE. The company is expected to report a rise in earnings of 9% in the current financial year. Since its shares have fallen by 15% in the last year, they now trade on a price-to-earnings (P/E) ratio of around 10.8. This suggests that they could offer a wide margin of safety and may be able to deliver improving performance over the long run.

Of course, there are risks facing the company. Notably, there is still geopolitical uncertainty regarding one of its key customers, Saudi Arabia. As well as this, the prospects for the world economy continue to be uncertain, with the potential for a full-scale trade war having the capacity to hurt the company’s financial outlook. And, following US mid-term elections, defence budgets may not rise as quickly as had been expected by the market.

Despite these risks, BAE appears to offer growth potential as defence budgets across a number of major economies are forecast to rise over the medium term. Certainly, further share price volatility could be ahead. But at a time when interest rates in the UK are expected to rise and tax changes are reducing the appeal of buy-to-let properties, buying a slice of the FTSE 100 defence stock could prove to be a sound long-term move.

The post Forget buy-to-let! I’d rather invest in the BAE share price today appeared first on The Twelfth Magpie.

More reading

• Is now the perfect time to buy Rolls-Royce, Babcock and BAE System shares?
• 1 FTSE stock tipped to handily outdo Rolls-Royce shares by 2027
• Forget SpaceX, here are 3 UK tech stocks to consider buying without the high price tag
• Should investors consider buying BAE Systems shares now they’re back below £20?
• BAE shares are falling: opportunity or warning?

Peter Stephens owns shares of BAE Systems. The Motley Fool UK has no position in any of the shares mentioned. 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.

With the BAE (LSE: BA) share price having fallen in recent months, it now has an increasingly attractive dividend yield. However, it’s not the only FTSE 100 dividend share that could be worth buying now for the long term, in my opinion.

Unpopular sector

British American Tobacco (LSE: BATS) has become an increasingly unpopular share in a sector that fewer investors are bullish about. The stock has declined in price by 46% in the last year. For a company that has a long track record of stable financial and operational performance, as well as defensive characteristics, that is an exceptionally disappointing performance.

Of course, the future for tobacco seems to be highly challenging. Increased regulations in a range of countries around the world, coupled with changing consumer tastes, are causing cigarette volumes to decline. This trend is showing little sign of slowing, and could impact on the wider industry over the next few years.

However, with British American Tobacco having significant pricing power, it could offset falling volumes with higher prices. It also has a strong position in the e-cigarette segment, while it is investing heavily in reduced-risk products. Therefore, with it offering a dividend yield of around 7.4%, it appears to be a highly appealing income investing opportunity for the long run.

Growth potential

BAE is also a relatively unpopular share at the present time. Its stock price has fallen by 25% since mid-July, with concerns surrounding Saudi Arabia likely to be the main reason for this. As a major customer of the company, the mere possibility of sanctions against the country could cause significant disruption. And with wider concerns about the world economy continuing to dominate investor thoughts, the stock faces a challenging near-term period.

However, with it now having a dividend yield of 4.5% which is covered 1.9 times by profit, the stock appears to have improving income potential. The defence sector’s growth potential could help to boost its dividend growth rate in future. With GDP growth across the developed and developing world being strong at the present time, spending on defence could increase significantly. After a period of restricted growth, this may provide a tailwind for the company over the long run.

Of course, BAE may experience further uncertainty in the near term. However, with its bottom line forecast to rise by around 8% next year and it appearing to have a margin of safety as represented by a relatively high dividend yield, its long-term investment potential appears to be impressive relative to the wider FTSE 100.

The post Have £1,000 to invest? BAE is a FTSE 100 share I’d buy right now appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of BAE Systems and British American Tobacco. The Motley Fool UK has no position in any of the shares mentioned. 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.

One stock which could perform well in the long run is defence company BAE (LSE: BA). It appears to offer a mix of value for money and growth potential. As such, it could be worth buying alongside a smaller stock which reported positive results on Wednesday.

Improving outlook

The company in question is advanced computer vision technology specialist Seeing Machines (LSE: SEE). It reported a rise in revenue in its financial year of 117%, with its top line reaching A$30.7m. Its Fleet division’s revenue increased by 89%, while Automotive revenue increased five-fold. It was able to secure production awards in the year to 30 June, with two premium German automotive original equipment manufacturers (OEM), as well as one global US-based OEM for multiple vehicle models in the 2019 to 2022 timeframe.

The company is seeking to transform the business model of its Fleet division in order to improve the deployment of capital and resources across the group. It is also seeing increasing demand from the global automotive sector for its driver monitoring system (DMS) technology.

As such, Seeing Machines could enjoy a tailwind over the medium term. DMS technology looks set to play a greater role in the transport sector, with autonomous driving and safety likely to be key growth areas in future years. While the company may be relatively risky and volatile, its long-term investment prospects appear to be improving.

Growth potential

The outlook for BAE and the wider defence sector has improved significantly in the last few years. Higher spending on the military by the US and an end to austerity across much of the developed world means that the financial prospects for defence companies across the globe could be boosted. This may lead to rising bottom lines and higher valuations.

With a price-to-earnings (P/E) ratio of around 16, BAE doesn’t appear to be excessively priced at the present time. The company is forecast to post a rise in earnings of around 9% in the next financial year, and this could help to stimulate investor demand for its shares. And with it yielding 3.7% from a dividend that is covered 1.9 times by profit, its total return potential seems to be high.

BAE is focused on driving through efficiency gains over the medium term. It is also seeking to advance and further leverage its technology in international markets, as well as adjacent markets. Its position as a major supplier across a number of segments means that it may be well-placed to identify new growth opportunities. Therefore, it could benefit significantly from global GDP growth and the return to higher military spending which seems likely to take place over the coming years.

The post Have £1,000 to invest? FTSE 100-member BAE’s share price could boost your retirement savings appeared first on The Twelfth Magpie.

More reading

• Is now the perfect time to buy Rolls-Royce, Babcock and BAE System shares?
• 1 FTSE stock tipped to handily outdo Rolls-Royce shares by 2027
• Forget SpaceX, here are 3 UK tech stocks to consider buying without the high price tag
• Should investors consider buying BAE Systems shares now they’re back below £20?
• BAE shares are falling: opportunity or warning?

Peter Stephens owns shares of BAE Systems. The Motley Fool UK has no position in any of the shares mentioned. 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.

Mincon’s sales increased by 11% versus the same period of the prior year, while its pre-tax profit rose by the same amount. Given the cyclically depressed volumes and margins in some of the sectors in which it operates, these are strong results.

Africa woes

In fact, Mincon has seen growth only in the Americas and Australia, with its operations in Africa retrenching in the first half of the year. Notably, the instability of the South African rand has caused significant caution and margin pressure on the South African market. This has further impacted neighbouring countries and it would be unsurprising for this trend to continue over the near term.

Looking ahead, Mincon is forecast to record a rise in its bottom line of just 1% next year. Given that the company trades on a price-to-earnings (P/E) ratio of 18.7, it seems to be overvalued. That’s especially the case since the near-term prospects in a number of key markets are highly uncertain.

As a result, investing in BAE or Rolls-Royce could be a better option. For example, BAE trades on a P/E ratio of 13.6 and is expected to grow its bottom line by 8% next year. This is largely due to an improved outlook for the wider defence industry, with austerity across the developed world being replaced with a more growth-orientated spending policy. This means that defence spending is likely to rise, which would be hugely beneficial for BAE.

On the up

This would also benefit Rolls-Royce, which is due to report a rise in earnings of 34% next year. It offers significant bid potential since its shares have fallen by 30% over the last three years. Weaker sterling also makes Rolls-Royce more attractive to foreign buyers, while its current turnaround strategy is sound and should positively catalyse its profitability.

Rolls-Royce may have a sky-high P/E ratio of 31, but when combined with its growth rate it equates to a price-to-earnings growth (PEG) ratio of 0.9. This indicates that it offers better value for money than BAE, which has a PEG ratio of 1.7. However, this figure doesn’t take into account the two companies’ risk profiles.

In Rolls-Royce’s case it has significant risk due to it being in the midst of a major turnaround. While this may succeed, BAE is a much more stable business that has been relatively consistent in recent years. Therefore, on a risk/reward basis, BAE offers greater appeal than Rolls-Royce, although the latter is still a much more attractive investment proposition than Mincon due to its higher growth rate and lower valuation.

The post Will Mincon Group plc beat 2 sector peers after today’s results? appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of BAE Systems. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.