One of the big disadvantages with buy-to-let investing is that it can be hard work. Washing machines break, pipes leak and some tenants don’t want to pay rent if they can possibly avoid it. And with government tax changes pushing down the returns that can be made, I think it makes sense for many to put money into the stock market instead this year.
Here are two shares I think have the potential to grow without too many ups and downs, helping investors make a healthy return, minus the buy-to-let headaches.
Ploughing money into new drugs
GlaxoSmithKline (LSE: GSK) has had to respond in recent years to the loss of patents on some of its major drugs. Arguably the response was too slow, but this is changing – fast.
Now GSK has 12 drugs at stage III trials – the final stage before registration. It has a further 22 drugs are at stage II as well. But although that may sound impressive, its main FTSE 100 rival, AstraZeneca, has 27 drugs at stage III and 47 at stage II. There’s a clear gulf between the two companies, but it doesn’t mean GSK is in a bad position. It’s just not as strong on the development front currently.
It has advantages too. A dividend yield of 4.5% far outstrips the yield on offer from its rival, which is below 3%. At the same time, GSK is also far cheaper. Its P/E of 15 is much better value than AstraZeneca’s, which is nearer 30.
If the moves GSK is making to improve its R&D are effective while it spins out its consumer business, then the group could reward shareholders very nicely. I think the upside means the share shouldn’t have investors reaching for the aspirin.
Ditching plastic
DS Smith (LSE: SMDS) has, I think, been unfairly caught up in the consumer backlash against plastic. As a packaging company, it is associated with plastic, but management has sold the plastics division. A global partnership with the Ellen MacArthur Foundation – a leader in pushing for a circular economy – shows management is taking sustainability seriously. Yet the shares are quite cheap on a P/E of only 10.
The dividend yield of 4.5% is just about in line with the FTSE 100 average and its historical dividend cover has tended to be over two, which is a good indicator of the sustainability of the dividend. Put another way, a cut doesn’t seem imminent unless earnings drop rapidly for a sustained period. The dividend has also tended to grow most years, except for a slight blip in 2018.
The low P/E, combined with the high dividend yield, means I’d be tempted to pick up the shares if the market falls back from its recent highs.
I think that for investors who don’t want to spend a lot of time researching lots of shares and don’t want to hold anything that’s too volatile, these two are a good fit. The businesses have many strengths and I feel they should be steady performers in the years ahead.
