In my experience, one of the easiest ways for investors to make money from shares is to use the stock market to build a portfolio of stocks that provide a reliable, growing income.
This supply of cash can be reinvested to boost future returns, or can be withdrawn to provide a second income.
Here, I’m going to look at three FTSE 100 stocks I’d be happy to add to a long-term income portfolio.
Too cheap to ignore?
FTSE 100 insurance group Prudential (LSE: PRU) is a household name in the UK, but now makes much of its money in Asia and the USA. In 2018, the group generated an operating profit of £2,164m in Asia, £1,919m in the USA and £1,634m in the UK and Europe.
These numbers highlight the group’s geographic diversity and its direct exposure to Asia’s expanding middle class.
This year, the company plans to spin out its asset management business, M&G Prudential, into a separately-listed company. Some investors believe Prudential shares will attract a higher valuation after this, as the business will be more heavily focused on Asian growth markets.
At current levels, PRU stock certainly looks decent value to me. Trading on 10 times forecast earnings with a 3.3% dividend yield, this is a business I’d be happy to hold forever.
I’d back family management
It’s rare to find a family-owned and managed business in the FTSE 100. One exception to this rule is Associated British Foods (LSE: ABF), which owns brands including Twinings, Ovaltine, Silver Spoon, Kingsmill and Patak’s. The group also owns budget fashion retailer Primark.
ABF remains under the control of the founding Weston family, and is managed by George Weston. Like most successful family businesses, the firm is run conservatively and with a long-term view.
The balance sheet boasted net cash of £386m at the start of March and the dividend has not been cut for at least 22 years. Although the shareholder payout has doubled since 2009, last year’s dividend was still covered more than 2.5 times by earnings.
Such a safe package doesn’t come cheap. Associated British Food’s shares trade on 18 times 2019 forecast earnings and offer a dividend yield of just 1.9%. But if you want a stock you can rely on for the next 20 years, I think this could be a great choice.
I’d buy this instead of Tesla
You might think a company such as Tesla is the best way to play the growing shift towards electric cars. I’m not so sure. At this stage, I think it’s hard to be sure who the long-term winners will be.
I’d rather back a company with a proven track record of providing technology that’s used by many major car manufacturers. My pick on the UK market is Johnson Matthey (LSE: JMAT), a FTSE 100 chemicals group that’s best-known for making catalytic converters.
This 202-year-old firm has evolved before and is now working hard to develop a new generation of battery technology. In my view, this could be a great way to play the long-term shift towards electric transport.
Earnings are expected to rise by about 11% this year. Broker forecasts put the shares on a forecast price/earnings ratio of 13, with a dividend yield of 2.9%. I see the shares as a buy at this level.