There are many firms in the FTSE 100 that I would not invest my money in and then leave for ten years, or more, without looking.
Such companies tend to have cyclical business, such as banks, miners, oil producers, retailers and firms from the wider financial sector. Over a ten year period, the investment outcome would be unpredictable.
Some firms are different
However, there’s a handful of firms in the FTSE 100 with defensive, growing businesses that tend to suffer less from the effects of macroeconomic cycles. So I am happy to invest in those firms for ten or more years with a reasonable expectation that my total return will be positive.
If you are looking for buy-and-forget investments that can help you grow your funds while you get on with your life, this clutch of well-positioned companies could be worth your attention. Today, I’m looking at two of them: Reckitt Benckiser Group (RB) and British American Tobacco (BATS).
Both firms generate reliable, predictable and growing cash inflows by producing consumer goods. We could say that all firms produce goods and services for consumers in one form or another, but these two firms are special, because the goods produced are ‘essential’ for consumers and they don’t last very long.
I think that is an important distinction because it tends to lead to constantly regenerating flows of cash as customers repeat-buy the goods often. In contrast, cash generated by other firms can be lumpy if they produce products that consumers buy infrequently, and which last a long time, such as cars and washing machines. In difficult financial times, consumers may not buy such items at all, which makes cash inflows unpredictable and patchy for the cyclical firms supplying such goods.
Growth and rising dividends
Reckitt Benckiser and British American Tobacco both have a strong record of using the stable cash flow they generate from operations to pay reliable and rising dividends. They have worked hard to keep their businesses growing, and I reckon there’s every chance that they will keep on doing that over the next ten years or so. Ten years from now, today’s uncertainty surrounding the Brexit progress will likely be undetectable on their share price charts, and I expect their share prices to have moved up over the period.
This month, Reckitt Benckiser reported 4% like-for-like growth in sales of its health, hygiene and food products for the year so far. That figure strips out the recent advantageous effects of currency movements to reveal real underlying growth. The firm’s chief executive said: “We remain very confident that our medium and longer term strategic choices are right and will continue to drive shareholder returns.”
Meanwhile, British American Tobacco’s revenue grew just over 8% for the year as far as October after adjusting out currency advantage. The chief executive said: “I remain confident that we are on track to deliver another year of good earnings growth at constant rates of exchange.”
There’s no sign of any stress in these two businesses and both are growing organically and through acquisition. I think they are worth your time analysing with a view to buying the shares for the long haul.
