There are two types of FTSE 100 companies in particular whose stocks I am happy to buy and hold for decades. First, I like the look of a dividend hero stock. Reinvesting dividends to build up the number of shares I own, which can eventually start paying me a passive income, forms a key part of my retirement planning. Second, I would be happy buying and holding a FTSE 100-listed company that invests in a portfolio of exciting high-growth stocks for decades. A portfolio of stocks can change over time and is unlikely to fail because of one bad bet. Because of this, I can be confident the company will still be around for years to come.
A passive income stock
Stocks that pay reliable dividends are prime candidates to buy and hold for decades. A steady flow of dividends can be used to buy more shares. When its time to retire, there should be a stream of passive income to enjoy, or the shares can be sold. For this plan to work, I look to buy dividend hero stocks.
Consumer goods giant Unilever (LSE: ULVR) has not cut its dividend in nearly four decades. Unilever has historically made a little over 1.5 times as much in earnings as it pays out in dividends. Being able to cover dividends with earnings comfortably is a hallmark of a dividend hero stock, and forecasts for the next couple of years suggests the Unilever will continue to be a dividend hero.
Unilever has recently won shareholder approval to simplify its corporate structure. This should make acquisitions easier, which is good because Unilever historically achieves a high rate of return on invested capital. Margins have been improving, and the company’s e-commerce strategy paid off handsomely as countries went into lockdown. I am happy buying Unilever and holding it for decades. The dividend yield is around 3% now but given Unilver’s history and ambitions, I except sustainable dividend growth from this FTSE 100 stock.
FTSE 100 growth
I have often lamented the lack of FTSE 100 stocks among the headline-making high-growth tech companies. However, Scottish Mortgage Investment Trust (LSE: SMT) provides the kind of exposure I have been craving. The name of this FTSE 100 stock is somewhat misleading. What the mangers at Scottish Mortgage do is invest in a portfolio of around 90 stocks that they feel have competitive advantages in the new economy.
Large and listed companies like Amazon (e-commerce), Tesla (electric vehicles), and ASML (computer chips) feature in Scottish Mortgage’s top 10 holdings. Investing in a high-growth portfolio has done wonders for Scottish Mortgage’s share price. Over the last five years, it has risen by an average of 30% per year, comfortably beating the FTSE 100. That kind of return would have transformed a £1,000 investment into over £4,000.
Scottish Mortgage takes a long-term approach to its stock picks. Some are in smaller and unlisted companies that may take years to pay-off. Some will, of course, fail. Right now, some tech stocks look pricey and could fall. All this points to a lot of potential volatility in Scottish Mortage’s stock price. But that’s fine with me, as I am happy to buy these shares, hold them for decades, and ignore any short-term price swings.
