Let’s say for the purposes of this article I was opening a brand new Stocks and Shares ISA. After depositing some money, I would love to buy these three stocks for juicy returns and growth!
They are National Grid (LSE: NG.), Lloyds Banking Group (LSE: LLOY), and BAE Systems (LSE: BA.). Here’s why I’ve earmarked these three picks!
What do they do?
National Grid is the sole owner and operator of the UK gas and electricity transmission system in the UK.
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Lloyds is one of the ‘big four’ UK banks, and is the largest residential mortgage provider in the country, along with other leading financial products available to consumers.
Last but not least, BAE is the largest defence business in the world with an impressive track record and an extensive range of industry leading defence products.
The bull case
As sole owner and operator, National Grid has a few key bullish traits. Firstly, no competition means revenues can be stable, offering it excellent passive income prospects for dividend seekers like me. Plus, it possesses defensive attributes as energy is a basic requirement for all, similar to food and water.
The shares offer an attractive level of return, with a dividend yield of 5.5%.
Lloyds is another stock I’d buy primarily for the passive income opportunity. It offers a yield of 5.7%. The shares are cheap right now on a price-to-earnings ratio of just six. The firm has an excellent balance sheet to support future investor rewards, and should flourish once the current economic turbulence dissipates.
Plus, aside from its traditional banking business, it is entering into the build-to-rent market too. The current housing imbalance in the UK means it could capitalise and boost performance and returns on this front too.
As for BAE, defence spending is at all-time highs, helping boost its coffers and solidify its dominant market position. I must admit I do hope for a speedy resolution to all conflicts. However, it’s worth remembering defence covers more than just weapons.
The beauty of BAE is its excellent relationships with governments, multi-year contracts that offer it revenue stability, and stellar reputation. A dividend yield of 2.3% would help my ISA grow too.
The bear case
To start with, it’s worth noting that dividends are never guaranteed and are only paid at the discretion of the business.
The risk for National Grid is that government intervention could curb payout levels. Plus, maintaining such a large and vital asset could be costly, hurting its ability to reward investors.
Lloyds has been the victim of recent volatility, which has held back the shares. Plus, higher interest rates have made mortgage rates unobtainable for many consumers. This has hurt performance levels. I’ll keep an eye on the impact of continued turbulence on the shares.
As for BAE, I can’t help wondering if conflicts were to be resolved, would defence spending be scaled back? In addition to this, reputation is everything in its sector. If any type of product failure or malfunction were to occur, it could be disastrous for its reputation, balance sheet, and future prospects.
