If I had £1,000 to invest today, I’d buy FTSE 100 shares Aviva (LSE: AV) and Legal & General (LSE: LGEN).
There’s a simple reason why I’d buy these two stocks in particular. The insurance sector is one I know well. Therefore, I’m confident these stocks will be great additions to my portfolio.
FTSE 100 stalwarts
Aviva and Legal & General are some of the UK’s largest financial companies. Both firms own a portfolio of financial sector companies, doing everything from asset management to pension management and life and general insurance. They’re a one-stop-shop for consumers who want to buy financial products.
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Their two most significant competitive advantages are size and reputation. Legal is one of the largest asset managers in Europe. It also has one of the longest track records. The same can be said for Aviva, which has been around in one form or another for more than 300 years.
I want to be sure that if I invest my hard-earned money in a pension, that provider will still be around when I come to retire. With their strong balance sheets and diversified operations, I’m highly confident these two FTSE 100 companies will still be around in 40 or 50 years from now.
Growth potential
As the country’s economy grows, the demand for financial services and other financial products should also increase.
As such, it seems likely sales and profits at L&G and Aviva will also rise. So, I don’t think it’s unreasonable to say these two companies will not only still be around, but will be bigger than they are today, in several decades.
As well as these qualities, both FTSE 100 stocks currently support market-beating dividends. Shares in Legal offer a dividend yield of around 6.5%. Meanwhile, shares in Aviva could yield as much as 5.4% next year, according to analysts.
These figures imply the two companies offer a solid combination of income and growth. That’s why I’d buy both for my portfolio today.
Risks and challenges
Unfortunately, as well as offering attractive growth and income prospects, both companies also have their risks and challenges.
For example, the insurance market is highly competitive, and competition has been pushing down profits across the sector. Both Aviva and Legal may get caught up in this race to the bottom, which could harm growth.
What’s more, there’s no guarantee either equity will be able to sustain their current high dividend yields. Dividends are paid out of profits, and if company profits slump, the dividends may be cut. There’s also the risk that regulators may ask the two groups to hold back dividend payouts, as they did this time last year in the middle of the pandemic.
Despite these risks and challenges, I believe the outlook for both FTSE 100 stocks is exciting. That’s why I’d buy both with an investment of £1,000 for my portfolio today.
