If I was stranded with no access to investment markets, these are the five shares that I would want in my portfolio.
I'm sure you've all heard the joke:
Q: What's the definition of a long-term investment?
A: A short-term investment that has gone wrong!
In the spirit of long-term investing, I asked myself what shares I would like to have in my portfolio if I suddenly found myself stranded on a desert island. These are the shares that I feel I could turn my back on for years and leave to deliver a solid return.
|Company||Price (p)||2013 P/E (forecast)||2013 yield (%, forecast)||Market cap (£m)|
|ARM (LSE: ARM)||856||47.2||0.6||11,630|
|HSBC (LSE: HSBA)||691||12.0||4.0||125,770|
|Royal Dutch Shell (LSE: RDSB)||2,242||8.9||4.9||139,450|
|SABMiller (LSE: SAB)||2,963||19.7||2.2||46,970|
|Vodafone (LSE: VOD)||161||10.4||6.4||78,690|
In the last 15 years, Vodafone has matured from a tech stock to a utility.
Today, Vodafone is one of the outstanding income opportunities on the market. The dividend has been rising every year for the last 12 years. The historic yield on Vodafone's shares is the fifth biggest yield in the FTSE 100 (UKX).
Both profits and dividends are expected to rise by around 4% in 2014. This puts the shares today on a 2014 price-to-earnings (P/E) ratio of 9.9 with an expected dividend yield of 6.4%.
At the end of 2012, Vodafone received a £2.4bn dividend from its US associate Verizon Wireless. Vodafone is currently in the process of spending £1.5bn buying back its own shares in the market. This will help the company to increase its own dividend in the future.
Recent speculation over the status of Vodafone's minority stake in Verizon Wireless lifted the shares. With the buyback only 18% done, there is real scope for further price rises.
Ignore the high rating for a moment: ARM has been a great long-term investment. In the last five years, shares in ARM are up almost seven-fold.
ARM first came to prominence as the company that designed the microchips that went into mobile phones. The shares soared in the dotcom boom as speculators piled in. The growth that the company went on to deliver did not live up to these fevered expectations and the shares fell.
The smartphone boom that began in 2007 ushered in a new bonanza for ARM shareholders. In August 2008 you could buy the shares for less than 100p; three years later, they were trading around 600p.
The company is now making hay in a third market: tablet computers. I think these devices could become more ubiquitous than the television and a bigger part of family life. ARM is providing a high-margin product at the centre of an industry that I believe is still in its infancy.
Royal Dutch Shell (Shell)
Whatever happens while I am on my desert island, I am sure that the rest of the world will keep consuming energy. For this reason, I'm sticking Shell in my portfolio.
Shell rivals Vodafone as 'Dividend King Of The FTSE 100'. Shell has not cut a dividend since the end of World War II. In 2011, it paid out more cash than any other FTSE 100 share. This accolade was snatched from them by Vodafone in 2012, due to a special dividend paid out by the telecoms giant. It is likely that Shell will return to being the biggest payer in 2013.
In the last five years, Shell has increased its dividend by an average of 5.7% per annum. The 2013 dividend is forecast to be 3.5% ahead of the 2012 number.
Let's face it, (most of) the world loves a drink. SABMiller owns a number of drinks brands that make the company one of a handful of global super-brewers.
The loyalty of SAB's customers and the efficiency of its operations meant the company was able to grow earnings and dividends in all but one of the last five years. In that time, the average annual earnings per share (EPS) increase reported by the company was 12.8%. The average EPS increase was 12.7%.
Even when stranded on a desert island, if I was an SABMiller shareholder, I'd be happy knowing that millions of other people were getting a drink. Grolsch, Peroni and Miller Genuine Draft are long-established customer favourites, helping to bring a high degree of visibility to SABMiller's future earnings.
Despite the chaos wreaked by the financial crisis, HSBC managed to make a profit and pay a dividend throughout. That's the sort of resilience I am looking for in a desert-island share.
Of the UK-listed banks, HSBC has the most global footprint. This diversity is another reason why I believe the shares would be a safer 'buy-and-forget' hold.
As the banking industry recovers, HSBC is quickly increasing its dividends to shareholders. After a 13.9% dividend increase for 2011, the bank is expected to increase its payout by 7.6% in 2013 and by another 11.3% in 2014. Even after a year in which the HSBC share price increased 32.8%, its shares still come with an impressive yield.
HSBC earnings are forecast to dip slightly in 2012 before rising 12.0% for 2013.
Buying quality companies and holding them for the long-term is a classic investment trait of Warren Buffett. Probably the greatest investor alive today, Mr Buffett has recently been buying shares in a UK-listed company. To find out which one and the price he paid, get the free Motley Fool report "The One UK Share Warren Buffett Loves". If you want to learn from the methods of this billionaire, simply click here to get our free report.
> David owns shares in Vodafone but none of the other companies mentioned. The Motley Fool has recommended shares in Vodafone.