Why I’d buy this FTSE 100 stock to help fund my retirement

It seems to me the demand for this company’s products will remain elevated in today’s world.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

For my retirement share portfolio, I’m looking for stocks underpinned by stable, quality businesses with the potential to grow steadily and pay a stream of rising dividends for years to come.

My plan is to reinvest those dividends to maximise the process of compounding so that, over the next few years and decades, my retirement pot will really take off. As well as rising dividends, I expect the share prices of the investments in my portfolio to rise over time as well.

Steady, defensive businesses

And that means I can’t just invest in any old business. For example, highly cyclical enterprises such as banks, builders, retailers and the like are off my agenda when it comes to buying and holding shares for the long term. I’m not saying I’d never trade such stocks, but the more-cyclical shares available require greater attention to the timing of buying and selling shares, in my opinion.

So, I’m looking for shares backed by companies operating businesses with defensive qualities. Those firms engaged in a profitable niche in the market and displaying defensive qualities such as stable incoming cash flow that isn’t buffeted too much when the inevitable dips in the macroeconomy arrive.

That’s why I like the look of Smurfit Kappa (LSE: SKG), the paper-based packaging supplier. The firm is a big producer of corrugated packaging, containerboard and ‘bag in box’ operating in Europe and the Americas. It seems to me that the demand for such products will remain elevated in today’s world.

The firm has an impressive record of raising its dividend, and City analysts expect that trend to continue with more rises pencilled in for this this year and next. Meanwhile, I find today’s trading update for the nine months to 30 September to be encouraging. Revenue grew 3% in the period with Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) rising 11% and the EBITDA profit margin notching up a small advance of 140 basis points (bps).

Following a mega-trend

In Europe, the volume of corrugated box sales grew almost 4% year-on-year and nearly 2% on an organic basis. In the Americas, organic volume grew approximately 2% with “EBITDA and EBITDA margin improvement year-on-year.

Chief executive Tony Smurfit said in the report that the quality and geographic diversity of the business overcame the “obvious” macro-economic and political challenges seen during the period.  Consumers, he said, are “increasingly demanding sustainable packaging solutions.” He reckons Smurfit Kappa is “ideally positioned” to take advantage of this “megatrend.” 

I think the shares are a good fit for my retirement portfolio and the valuation isn’t too demanding either. With the share price near 2,574p, the forward-looking earnings multiple for 2020 is just below 11 and the anticipated dividend yield is around 3.7%. At these levels, I’d be a buyer of the shares with a long-term investment horizon in mind.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any share 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.

More on Retirement Articles

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

I’d try to grow a £100K SIPP by 9% annually doing this!

Our writer thinks a slow and steady approach could help him build the value of his SIPP dramatically. Here he…

Read more »

A senior man and his wife holding hands walking up a hill on a footpath looking away from the camera at the view. The fishing village of Polperro is behind them.
Investing Articles

£8k in savings? Here’s how I’d aim to retire with a second income of £1,000 a month!

This Fool is considering a strategy to secure a second income from a small pool of savings. With the right…

Read more »

The words "what's your plan for retirement" written on chalkboard on pavement somewhere in London
Investing Articles

£30k in savings? Here’s how I’d aim to turn that into a second income of £15k

Here’s how I’d aim to invest in stocks and shares to generate a decent second income worth having in retirement…

Read more »

A senior man and his wife holding hands walking up a hill on a footpath looking away from the camera at the view. The fishing village of Polperro is behind them.
Investing Articles

2 UK shares that could help set up a SIPP for decades!

Our writer explains the long-term appeal he sees in one British share he already owns in his SIPP -- and…

Read more »

Bearded man writing on notepad in front of computer
Investing Articles

Here’s how I’m aiming to become a Stocks and Shares ISA millionaire!

I'm confident that a regular investment in FTSE 100 and FTSE 250 shares could supercharge the size of my Stocks…

Read more »

Investing Articles

3 top tactics that ISA millionaires use to strike it rich!

Ever wondered how ISA millionaires manage to make such enormous wealth? Here, Royston Wild divulges some of their greatest strategies.

Read more »

Investing Articles

Can a Stocks and Shares ISA help me retire early?

This Fool is confident that using his Stocks and Shares ISA will allow him to give up work early. Here…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Cash vs Stocks and Shares ISAs: here’s where I’m investing in 2024!

Cash and Stocks and Shares ISAs are both excellent products for the modern saver and investor. But which is the…

Read more »