5 shares under £5 I’d buy now

One of the things I like about investing in shares is that I don’t need to have a lot of money to participate in the stock market. Considering shares to buy now for my portfolio, I notice that many cost less than £5 each. Here are five of them.

High-yield insurers

Two companies that both trade for less than £5 a share I would consider adding to my portfolio are insurers Direct Line and Legal & General. The businesses have quite a lot in common. Both have well-known insurance brands that should help them in the quest to attract and retain customers. Both typically have generous dividends, with Direct Line currently yielding 7.8% and Legal & General offering 6.4%. I also think both companies are set to benefit from long-term growth in the demand for financial services products.

While the Direct Line yield is higher, I like the Legal & General business more as it has a well-developed investment management business. I think that could help it to keep growing post-tax profits, which last year were £1.3bn.

But rather than try and choose a winner between the two companies, I’d be tempted to buy both of these UK shares at their current prices well below £5. To maintain a diversified portfolio, though, I’d only buy them while also holding shares from other sectors. There are risks in insurance that could bedevil both companies, including price competition driving down profit margins.

A banking share under £5

Leading British bank Natwest is trading close to its high price of the past year. During that time, it has more than doubled, with the Natwest share price growing 103% in 12 months.

I would still consider adding the shares to my portfolio today, though. I think Natwest is set to benefit from continued resilience in the UK housing market, helping sustain mortgage demand. The government plans to sell down its stake in the bank in coming years. That could lead to Natwest buying back and cancelling some of the shares. So its earnings per share could increase simply by virtue of a smaller share float.

But there’s a risk with Natwest. Like other UK banks, rising interest rates may mean it could earn more from the money it lends out, but this could also damage consumer confidence and hurt profits.

An oil giant

Like the Natwest share price, oil has also been on a roll lately. I think it could be a good time to add energy major BP to my portfolio. The company pumps a lot of oil and so should benefit from strengthening prices. With a 5.5% yield, it would reward me for holding it too. Further increases in the price of oil could also lead to appreciation in the BP share price.

But dividends are never guaranteed. BP halved its dividend last year. And the company’s shift to a broader energy mix could hurt profits.

FTSE 100 share with a 7% yield

And telecoms giant Vodafone also earns a place on my list of shares to buy now. In fact, I could buy four Vodafone shares and still have change from a fiver. I like Vodafone’s iconic brand name, large customer base and juicy 7% yield.

There are risks though. Vodafone’s capital expenditure requirements are high as it needs to keep its infrastructure up to date with evolving technology. That could hurt profits.

Christopher Ruane 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.