What’s good enough for octogenarian Buffett should be good enough for an investor just starting out on the road to long-term wealth accumulation.
Pharmaceuticals giant GlaxoSmithKline has a market capitalisation of £70bn, and is the fourth-largest company in the FTSE 100. The company is a ‘core’ holding for many investors.
Size, prodigious cash generation and the ‘non-cyclical’ nature of the pharma industry make Glaxo a relatively steady share through all economic conditions. The company has a great dividend history, and the prospective dividend yield is currently 5.7% at a share price of 1,434p. Reinvest the dividends to buy more shares year after year and the value of your investment should snowball over the long term.
Asset manager Schroders (founded in 1804) is also in the FTSE 100. With a market capitalisation of £6.5bn, Schroders may not be in the ‘megacap’ league of Glaxo, but I believe it has attractions for long-term investors.
The nature of Schroders’ business means its shares tend to exaggerate the returns of the wider market. Shareholders have to steel themselves when markets wobble, but because markets rise over the long term (multi-decades) the reward should be outsize returns if Schroders continues to do what it’s done successfully for over 200 years.
Unusually, the company has two classes of share: voting shares (ticker SDR) and non-voting shares (LSE: SDRC). Small private investors have little to gain from holding the voting shares. The non-voting shares are cheaper (currently 1,851p versus 2,435p for the voting shares), and provide a bigger dividend yield: 3.7% versus 2.8%.
Smaller companies are considered inherently more risky than big companies — but they also have potential to grow faster. Furthermore, some smaller businesses have the kind of qualities Buffett looks for, and even a beginner may want to consider including a smattering of such shares in a portfolio.
Latchways, which has a market capitalisation of £109m, is the global leader in fall protection equipment for people working at height. Safety is not something employers can afford to skimp on. Latchways’ reputation as the number one — built over 30 years — and increasing safety regulation around the world, give the company plenty of scope to continue growing strongly.
Recent cyclical weakness is some of Latchways’ markets, notably commercial construction in parts of Europe, means investors today can buy the shares at a lower price (965p) than would otherwise have been the case. It also means that the prospective dividend yield (4.4%) is higher than usual.