£2k to invest? 2 investments I’d make in a Stocks and Shar…[ad_1]
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With the stock market beginning what could be an explosive recovery, I’ve been on the prowl for new opportunities for my Stocks and Shares ISA. And two companies in particular have caught my attention this month. In fact, I’m currently considering each carefully for my next potential investment.
The company behind the cloud
Cloud computing plays a pivotal role in modern technologies and services. Microsoft Azure and Google Cloud are often some of the first businesses that pop into investors’ heads when talking about this space. But there’s another firm working behind the scenes that allows for all this technology to exist in the first place.
Arista Networks (NYSE:ANET) builds the hardware that goes into the data centres. Its ethernet switches and routing devices provide the critical bandwidth needed for high-speed internet communications. And with its technology consistently outperforming that of its peers, the firm now controls roughly 42% market share – a trend that continues to move upward.
With management switching tactics to focus on securing hyperscale customers like Microsoft Azure, revenue and earnings growth has consistently outperformed analyst expectations. And over the last five years, both have been growing at an annualised rate of over 20%. That certainly sounds like a nice potential addition to my Stocks and Shares ISA.
However, this strategy does have a big caveat. With the bulk of cash flow originating from just a handful of enterprise customers, there is a high level of revenue concentration. In fact, the income from just Microsoft and Meta Platforms represents roughly 40% of the top line. Suppose one of these customers decides to swap to a competitor? In that case, it could have dire consequences for Arista’s financials.
Having said that, the cloud hardware arena is fairly complex, with very few competitors capable of operating on the same scale. Therefore, while this risk is severe, the probability of it occurring seems low, in my opinion. That’s why I’ve already been bolstering my existing position.
The best UK dividend stock?
While the UK doesn’t have a wide variety of technology stocks, it’s still home to many high-yield dividend stocks. And Safestore (LSE:SAFE) is looking increasingly attractive, in my eyes.
The firm owns and operates a network of self-storage facilities across the UK and Western Europe. Leasing storage space is hardly exciting compared to powering the internet. However, that doesn’t mean it can’t be lucrative. In fact, the steadily increasing demand for extra storage space over the last decade has allowed this dividend stock to be one of the best-performing shares on the London Stock Exchange.
Since 2013, the company has delivered a total shareholder return of roughly 780% – 400% of which came from dividends alone!
Building a commercial real estate empire obviously isn’t cheap. And the group currently has around £795m of debt & equivalents, with interest payments placing pressure on margins. As the Bank of England continues to hike rates, this pressure will likely mount, potentially compromising shareholder payouts.
However, with an interest coverage ratio currently sitting at 10.8, I don’t think there’s any immediate cause for concern. And now that management has just launched a joint venture to expand into Germany, there could be far more dividend growth to come.
That’s why I think Safestore could be an excellent income addition to my Stocks and Shares ISA today, once I have more capital at hand.
Tags: Cloud Computing, Don Lichterman, SCA Sunset, Sunset Host Co