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A Stocks and Shares ISA is a brilliant home for long-term wealth. Ideally, it would include a spread of companies from different sectors. That way, if one part of the market struggles, others might hold firm or even shine.
These five FTSE 100 stocks could form the core of a nicely balanced portfolio. There are risks, though, as well as potential rewards.
Dividend income
National Grid delivers electricity and gas across the UK and the northeastern US. It’s a company many turn to when looking for reliability and defensive income.
My big concern is debt. National Grid is investing heavily in infrastructure to support the energy transition. Last year, the dividend was rebased and is now a more modest 4.5%.
It’s riskier than it was, but still worth considering as a portfolio building block. Demand for electricity isn’t going anywhere (except up).
Rio Tinto is a major global miner producing iron ore, copper, aluminium and lithium. That makes it a useful way to tap into long-term trends such as electrification and infrastructure development in Asia.
The shares are down 17% in a year as falling commodity prices hit profits. I’m not expecting an instant rebound, with the US and Chinese economies struggling.
However, the yield is a blockbuster 7.1%. Rio Tinto looks cheap with a price-to-earnings ratio (P/E) below nine. That also shows investors remain wary.
Share buybacks
Lloyds Banking Group is the UK’s biggest mortgage lender. With interest rates higher, net interest margins have improved, boosting profits. The shares are up 40% in a year and still look reasonable value with a P/E around 12. Lloyds yields 4.4% and has restarted share buybacks.
Loan defaults could rise if the economy slows or interest rates stay elevated. But for income and value hunters, Lloyds is worth considering.
AstraZeneca (LSE: AZN) is a major UK success story. Its cancer drug pipeline is strong and it continues to grow revenues from newer treatments in respiratory and cardiovascular disease.
The AstraZeneca share price ran away with itself, and has now fallen 15% in the last year. This has cut its P/E to around 17, modest by its recent standards, and could offer an attractive entry point. The dividend yield is lower than some at 2.3%.
Any drugs pipeline always carries risks, with lengthy trials and patent cliffs. Donald Trump’s trade tariffs are a concern, as is the administration’s policy towards the pharmaceutical industry. But AstraZeneca’s track record shows it can innovate and deliver. Much to like, but as ever, investors should do their own research.
Recovery potential
Finally, a stock that has been struggling but may be due a comeback.
Diageo (LSE: DGE) sells some of the world’s best-known spirits, from Johnnie Walker to Tanqueray, in more than 180 countries.
Sales in Latin America and the Caribbean disappointed as cash-strapped drinkers shifted to cheaper brands, and US demand has slowed too.
The Diageo share price is down 25% over 12 months, and almost 50% over three years. The P/E is down to around 15 and the dividend yield is 4%. Challenges include younger people drinking less, and weight loss drugs like Ozempic helping people stay off the booze.
Risks like these are why investor should only buy stocks for a minimum of five years (and ideally longer), and spread their money around.
