This FTSE 100 firm isn’t the only dividend stock I’d buy today and hold forever

Roland Head flags up a potential Warren Buffett buy in the FTSE 100 (INDEXFTSE:UKX).

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Warren Buffett famously said that “if you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes”.

Mr Buffett’s commitment to long-term investing in quality businesses has seen him become a billionaire. But finding stocks suitable for this long-term strategy isn’t always easy.

Today I’m looking at two companies I believe are potential Buffett-style investments.

Another strong year

Shares of meat-packer Hilton Food Group (LSE: HFG) rose this morning after the company said sales rose by 5.7% to £1,359.5m last year, excluding currency gains. Adjusted pre-tax profit rose by 7.9% to £37.4m, while adjusted earnings were 5.9% higher at 37.4p per share.

Hilton — which was founded with a single Cambridgeshire plant in 1994 — now operates factories in six European countries, plus Australia and New Zealand. The group is also involved in several joint ventures overseas.

Last year saw the company expand into the seafood market through the acquisition of Seachill UK. It also began to produce fresh food such as pizza, sandwiches and soups.

This business should keep growing

Hilton’s earnings have grown by an average of 6.5% per year since 2011. As you’d expect for a supermarket supplier, profit margins are slim. But the business benefits from strong cash generation and high returns on the capital it invests.

I believe this is one of the main reasons for the group’s success. Although sales have risen by 32% since 2012, net debt levels have actually fallen over the same period. The company ended last year with net cash of £25.4m

Shares in this Huntingdon-based firm have risen by 130% over the last five years. They now trade on a forecast P/E of 19 with a prospective yield of 2.6%. Although this isn’t cheap, I believe the quality of this business means that further gains are still possible.

A family-owned business

Businesses with family ownership are often run with a long-term view that leads to sustainable growth, rather than boom-and-bust scenarios.

A good example of this is FTSE 100 firm Associated British Foods (LSE: ABF). This diverse group owns budget fashion retailer Primark, grocery businesses such as Kingsmill and Silver Spoon, plus specialist agricultural and ingredients operations.

The company is run by chief executive George Weston, who is a member of the founding Weston family.

Profits have doubled since 2012 and adjusted earnings rose by 20% to 127.1p per share last year.

However, the firm warned that profit margins in the sugar business and at Primark would remain under pressure in 2018. This prompted a sharp drop in the group’s share price, which has fallen by 25% since October.

This could be a buying opportunity

ABF’s latest trading statement confirmed that adjusted profits are expected to rise this year. Analysts’ forecasts suggest this could translate into earnings per share growth of 6%, plus dividend growth of 9%.

The forward dividend yield here is only 1.9%, but this low yield reflects expected dividend cover of three times earnings. That’s the kind of long-term thinking and conservative management which makes it possible to increase the dividend during lean years.

In my view, ABF’s falling share price has created a buying opportunity. Trading on 18 times forecast earnings, I rate this as a long-term buy that could deliver healthy gains over the next decade.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Associated British Foods. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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