The Best FTSE 100 Stocks to Watch

Taylor Wimpey

The pandemic and the cost-of-living crisis have hampered the housebuilding industry over the last couple of years.

However, inflation is falling back towards target levels and, consequently, the Bank of England (BoE) appears to have reached the end of its rate hiking cycle, with interest rate cuts anticipated to arrive this year. This is good news for housebuilders, which stand to benefit from falling rates.

Pre-empting the UK’s central bank, mortgage lenders started to cut rates towards the end of 2023. Consequently, many UK housebuilder shares such as Taylor Wimpey soared in the last months of 2023, as sentiment improved amongst investors.

However, the Taylor Wimpey share price still sits below its pre-pandemic levels, with sales for the year ahead also forecast to remain considerably lower than in 2020. There is also a risk that inflation could begin to move upwards again and that interest rates may stay higher for longer than anticipated.

Nevertheless, despite short-term headwinds, the simple fact is that the UK has a shortage of homes and a significant level of demand. Housebuilders are well-positioned to help address this supply and demand imbalance, whilst capitalising on it at the same time.

Subsequently, housebuilder shares such as Taylor Wimpey could represent some of the best FTSE 100 stocks to watch for investors with a long-term mindset. These stocks also tend to distribute a portion of their earnings amongst shareholders as dividends. At the time of writing, Taylor Wimpey has a dividend yield of around 6.5%.

Lloyds Banking Group

In order to tackle inflation, UK interest rates have risen to their highest levels since before the financial crisis in 2008.

As interest rates rose, banks began to see an increase in net interest income, as they were able to generate more money from their lending operations. The lack of an investment banking division, and its leading position in the UK mortgage market, means that Lloyds is more sensitive to interest rates than many of its competitors.

However, whilst higher interest rates can be a positive for banks, they also increase the risk of loan defaults and can cause a reduction in new borrowing.

Now inflation is cooling, the BoE is expected to lower interest rates in 2024, although exactly when this will happen is debated. A reduction in rates could be beneficial for the Lloyds share price, as it will reduce the risk of bad debt and potentially provide a boost to new lending.

However, Lloyds is strictly a UK-based operation, meaning that its performance is inevitably tied to the health of the UK economy. If the UK economy performs worse than expected in the coming months, then this is likely to hinder Lloyds’ performance in 2024. At the time of writing, Lloyds has a dividend yield of 5.9%.

Unilever

Unilever is a consumer staples company, which owns a wide variety of globally respected brands including Hellmann’s, Dove and Magnum.

Whilst a company like Unilever is hardly likely to provide the kind of explosive growth many beginner investors crave, it has the potential to offer reliability and steady returns for long-term investors, as consumers tend to purchase the company’s goods through both good times and bad.

Unfortunately, the company has underperformed in recent years. In the five-year period ending 31 December 2023, the Unilever share price dropped 7.5% compared to a gain of 14.9% across the wider FTSE 100. Revenue growth has also been fairly sluggish over the last decade.

Nevertheless, the company recently changed leadership, appointing Hein Schumacher as CEO in the summer of 2023. Under Schumacher’s leadership, Unilever is focused on exploiting its most popular brands, and cutting the underperformers from its portfolio.

The cost-of-living crisis has weighed on Unilever’s performance over the last couple of years, as higher prices have forced consumers to seek cheaper alternatives. However, if inflation continues to fall to target levels this year, then Unilever’s performance is likely to improve.

In the meantime, the FTSE 100 stock is a historically reliable dividend payer, having raised or maintained dividends for more than 20 years. At the time of writing, Unilever has a dividend yield of 3.8%.