Multi-billionaire Warren Buffett, probably the world’s most famous and successful investor, follows a strategy of buying great businesses with a view to holding his shares ‘forever’.
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.
Today, I’m going to tell you why I think Rio Tinto (LSE: RIO) (NYSE: RIO.US), Rolls-Royce Holding (LSE: RR) and Dignity (LSE: DTY) are worth consideration for a beginner’s portfolio.
Rio Tinto
The mining industry goes through periods of over-production and falling prices, and periods during which production races to keep up with demand and prices go crazy. There’ll be times when you think your mining share is your best ever investment, and times when you think it’s your worst.
Nevertheless, backing a big mining company through thick and thin should pay off over the long term, as industrialisation around the world is set to continue for many decades to come. Rio Tinto is one of the world’s biggest miners, and, with a market capitalisation of £45bn, ranks among the super-heavyweight companies in the FTSE 100.
Miners have been at a low ebb for a few years, and now could be a good time to buy for patient investors. Rio’s shares are trading at 3,186p, and currently sport a 4% dividend yield. Even if the shares remain depressed for a while, you can reinvest the dividends to buy more shares while they’re cheap, and thus compound your long-term returns.
Rolls-Royce
Rolls-Royce is another FTSE 100 company. The renowned aerospace and defence firm has a market capitalisation of close to £20bn at a current share price of 1,030p.
Rolls-Royce is currently suffering from a bout of weakness in some of its markets (defence and marine), which has spooked some impatient share speculators, but created an attractive opportunity for long-term investors.
While 2014 is set to be a below-par year, Rolls-Royce’s order book stands at over £70bn — equivalent to four-and-a-half years of revenue — and the company’s chief executive says “the prospects for long-term growth remain outstanding across the Group”.
Dignity
Dignity is the UK’s only stockmarket-listed owner of crematoria and provider of funeral-related services. While the company is small, relative to Rio and Rolls-Royce — Dignity has a market cap of under £800m at a current share price of 1,484p — the funerals market is very predictable and reliable!
As such, Dignity is somewhat similar to a steady, regulated utility, such as National Grid. In particular, the company is able to borrow money for long periods at attractive rates to boost shareholders’ returns.
From time to time, as Dignity grows, and it increases its borrowings, the company makes capital returns to shareholders on top of regular dividends. Indeed, management has just announced its latest proposal — to return 100p per share.
