The FTSE 100 index is one of the best performing stock indexes in the world so far this year. Some technology-heavy indexes like the Nasdaq 100 have seen declines of 14% year-to-date. Meanwhile, the FTSE 100 is up by around 2%. It’s not a phenomenal return by any means. But it shows to me that the leading UK shares are in demand among global investors right now.
I’d say it’s partly due to the types of shares in the Footsie. It’s comprised of relatively few technology companies. It is, however, filled with many banks, miners, and utilities. I reckon all three sectors could continue to perform well and it’s also where I’d find shares that I’d consider buying right now.
A FTSE 100 giant
First, there’s mining giant Rio Tinto (LSE:RIO). This is a solid buy-and-hold stock for me. As the second-largest metals and mining company in the world, founded 149 years ago, Rio has a long track record. Iron ore accounts for 66% of its sales. This commodity is the main raw material used to make steel, which in turn is used to build buildings, bridges, cars, and many other products around the world. Demand for infrastructure and products should grind higher over the long term. A word of warning though. A weaker property sector in China is a risk to iron ore demand and steel prices in the near term.
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As a FTSE 100 investment, Rio has some remarkable attributes. For instance, it ticks a lot of boxes including profitability, cash flow, and dividend income. It boasts a return on capital of over 30% and a chunky profit margin of over 45%. These alone are signs of a quality share, but that’s not all. With a price-to-earnings ratio of just eight times, I reckon it’s pretty cheap too. But for me, the cherry on to is its 9% dividend yield. That’s among the highest in the entire FTSE 100 index.
I need to bear in mind that weaker iron ore prices in the near term could be a risk for earnings and dividends. But overall I would happily buy these shares today, and even more if the price happens to drift lower.
Electrifying stability
The utilities sector is often thought of as slow-moving and dull. And I reckon it is. But that doesn’t mean it can’t make me money. In times of crisis, often it’s the less exciting shares that provide stability. That’s why I’d consider adding SSE (LSE:SSE) to my Stocks and Shares ISA.
In contrast to a successful growth stock, SSE’s share price has remained relatively flat over many years. Yet it has still managed to provide shareholders with a 7% annual return over the past decade. The reason for that is a stable and relatively high dividend yield. Currently, SSE offers a 5% dividend yield. Note that there are FTSE 100 shares with higher dividend yields, but bigger isn’t always better here. Much greater yields may not be sustainable. That’s where SSE stands out. It has a near three-decade history of distributing dividends to shareholders.
Although its past track record doesn’t guarantee what it does in the future, it does provide me with some confidence. As one of the UK’s leading generators of renewable electricity, there should be plenty of business for years to come.
