UK shares: 2 stocks to buy with £500 today

When I am looking for UK shares to buy, I like to focus on what I believe are the market’s best companies. By sticking with these high-quality stocks, I think I can improve my chances of earning a high return on my money. 

UK shares to buy for growth

One of my favourite companies on the London Stock Market at the moment is animal pharmaceuticals group Dechra (LSE: DPH)

While this company is a little more expensive than the sorts of businesses I am usually attracted to, I think it is worth paying a premium to take part in its ongoing growth. At the time of writing, the stock is trading at a forward price-to-earnings (P/E) multiple of 42. 

Considering its portfolio of unique products, I do not think this is too demanding. What’s more, Dechra’s growth has been nothing short of outstanding over the past six years. Net profit has grown tenfold since 2016. 

Investors should never use past performance to guide future potential. However, in Dechra’s case, it shows the company has the skills and drive required to develop and market new animal treatments

If this trend lasts and earnings continue to grow, I do not think I will regret paying a higher multiple for the shares today. 

That being said, the organisation does not have exclusive rights over the animal pharmaceutical market. This is a competitive industry, and growth is not guaranteed. If Dechra fails to invest enough, it may struggle to maintain its market share. 

Slow and steady

Infrastructure is not the most exciting sector. Nevertheless, investing in it is essential for countries around the world. 

3I (LSE: III) manages a selection of infrastructure funds and private equity businesses. The company is unlikely to achieve the sort of growth Dechra has recorded over the past six years. However, I believe that as long as there is a demand for maintaining and growing infrastructure, 3I will have growth potential. 

The company is also a dividend champion. Infrastructure and maintenance and construction contracts are usually inflation-linked. This suggests 3I’s profits should grow in line with inflation.

That also implies management could increase the company’s dividend at a similar rate, providing some protection in an inflationary environment. There is also potential for dividend growth as the infrastructure market expands. 

At the time of writing, the stock supports a dividend yield of around 3%

These are the reasons why I would buy the company for my portfolio of UK shares. It is a defensive income champion with the potential for substantial growth over the next few years.

Potential challenges the group could encounter include higher interest rates, which may increase the cost of its borrowings. Further coronavirus restrictions would also disrupt operations and reduce income. 

The post UK shares: 2 stocks to buy with £500 today appeared first on The Motley Fool UK.

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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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