Finding stocks you can safely tuck away and forget about for two decades isn’t easy. You need to be sure their businesses will still exist in the future. And you’ll need to focus on companies that aren’t likely to end up in financial distress.
Today I’m going to take a closer look at two potential 20-year stocks I’ve found on the London market. One is a £2bn FTSE 250 firm, while the other is a little smaller at £470m.
Safer than houses?
My first stock is London property group Great Portland Estates (LSE: GPOR). Shares in this 60-year old FTSE 250 company edged higher this morning, after it upgraded its rental growth guidance for the year.
You might think that property is too much of a ‘boom and bust’ sector for a long-term buy-and-hold position. I’m not sure that’s correct.
Owning prime real estate in London has proved to be a profitable strategy over very long periods of time. Although the property market is undoubtedly quite expensive at the moment, Great Portland’s share price already reflects a degree of caution. The group trades at a 25% discount to its EPRA net asset value of 813p per share.
Prime income appeal
Today’s figures from Great Portland Estates show a 1% rise in portfolio value and rental growth of 0.7% during the six months to 30 September. The group’s EPRA earnings — an industry-standard measure — rose by 11.7% to £31.6m, compared to the same period last year.
EPRA earnings per share climbed 15.7% to 9.6p, while the interim dividend was lifted 8.1% to 4p per share.
A further attraction is the group’s prudent approach to borrowing. Today’s results show that the portfolio’s loan-to-value ratio has fallen to just 15.4%, with a weighted average interest rate of only 2.7%.
Although the forecast dividend yield is only 1.8%, I see this as a slow-burning winner over long periods. I’d be likely to view any major share price crash as a buying opportunity, rather than a concern.
What about growth?
Great Portland’s focus on London may mean that growth opportunities are limited. If this concerns you then my second stock may be of more interest. Picton Property Income (LSE: PCTN) is a company you may not be familiar with.
Its focus is on commercial property such as industrial estates and office parks in towns and cities across the UK. Top 10 tenants include DHL, B&Q and publisher Random House. I think it’s probably fair to say that Picton’s properties are a good proxy for the UK economy as a whole, excluding the London-focused financial sector.
With a market cap of about £450m, Picton is smaller than Great Portland. Its borrowing costs are slightly higher at 4.1%, and it also carries a little more debt, with a loan-to-value ratio of 28%.
However, I don’t see these figures as a concern in this context. The group’s like-for-like rental income rose by 4.4% during the first half, while occupancy is higher, at 95%.
Picton shares currently trade in line with their net asset value of 86p, and offer a 4% dividend yield. I believe this stock could be worth tucking away for a few years — or longer — for income investors.
