2 FTSE 100 blue-chips to consider for a Stocks and Shares ISA before 5 April
There’s less than three weeks to go until the Stocks and Shares ISA deadline. And unlike the Lotto jackpot, unused amounts up to the contribution limit don’t roll over — they simply disappear.
Here are a pair of blue-chips from the FTSE 100 that I think deserve close attention right now.
Potential recovery stock
To say Diageo (LSE:DGE) has endured a tough few years would be an understatement. Now at a 14-year low, the share price has marched steadily downwards like one of those never-ending Wetherspoons staircases.
Shockingly, the fall from the peak is 65%!
The company blames squeezed consumer income for weak sales. And with the Iran war expected to cause a spike in inflation, trading may even worsen this year.
Yet under new CEO Dave Lewis, it looks like Diageo will adapt its dearly-held premiumisation strategy. While successful in the past, especially during the pandemic boom, it doesn’t appear fit for purpose when penny-pinching consumers are either drinking less often and/or trading down to cheaper brands.
Diageo admits itâs “significantly underrepresented” in the mass market. As I see it, the firm can either wait and pray for disposable incomes to improve, or it can adapt its strategy to compete in categories where drinkers are spending money and thereâs actual growth potential.
For example, Diageoâs portfolio only plays in the top 25%â30% of the market in Latin America. If it enters the rest with lower price points, and did this sensibly worldwide, it could boost overall volumes materially and make up for any lost margin.Â
Thereâs a whole bunch of people at the moment who are not enjoying a brand from Diageo in our core categoriesâ¦[But] that very selective price repositioning needs to be done, will be done surgicallyâ¦We do think, based on what we’ve seen so far, that there is a volume response to price repositioning if we get it right. That’s the opportunity.
Dave Lewis.
Management is also determined to service unmet demand for Guinness in some British pubs. And while the dividend has been rebased to improve financial flexibility, the forward yield‘s still a respectable 3.7%.
High-yield passive income
From respectable to remarkable now with pensions giant Legal & General (LSE:LGEN) and its forward yield of 9%. That’s high enough to generate £1,000 in tax-free passive income from an £11,100 investment in an ISA.
But is the payout sustainable? After all, dividends aren’t guaranteed and the firm’s profits could suffer if inflation sends markets and the UK economy into a tailspin.
Yet in this case, I’m confident in the income potential. Supported by a very strong balance sheet, Legal & General is returning more than £5bn to shareholders 2025 to 2027. This includes a £1.2bn share buyback, the largest in its history.
Looking further ahead, there should be structural, growing demand for retirement products, underpinned by a rapidly ageing population. It’s also simplifying its business while aiming to increase capital-light revenue.
The valuation looks cheap and there’s a chance the share price could edge higher over time through regular buybacks. Pairing this with the substantial income on offer, I think there’s a lot to like here.
I can see why Legal & General has been the most popular stock among AJ Bell customers over the past month. Just this week, I joined in the fun, buying another £1,100 worth of shares for my portfolio to lock in that juicy 9% yield.
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More reading
- Is Legal & General a top bargain after its 8% share price drop?
- How much do you need in a Stocks and Shares ISA to target £2,000 a month of passive income?
- Diageo shares are back at 2012 levels. Time to consider buying?
- Hereâs why 8.8%-yielding Legal & General shares remain my top pick for a high-income retirement portfolio
- How much passive income could £20,000 in an ISA grow to? It could be quite a bit
Ben McPoland has positions in Legal & General Group Plc. The Motley Fool UK has recommended Aj Bell Plc and Diageo Plc. 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.
