I like the principle of long-term investing. Rather than nervously following market trends or hoping share prices will suddenly move in my favour, I aim to buy shares in companies I expect to benefit from business trends in coming years. That is why I try to take a buy-and-hold approach when it comes to investing.
The bank Fineco has released a list of the shares that were the most popular among its investors in the first half, based on how long they were held. The top five includes names like Argo Blockchain and Deliveroo. But the fifth most popular among these buy and hold shares was a much more established company that caught my attention: medical devices producer Smith & Nephew (LSE: SN). Like some other investors, should I also be holding this share in my portfolio?
Strong global position
Smith & Nephew is a multinational company selling a variety of medical devices in dozens of markets.
I like that business area because demand for medical devices will likely remain robust. Indeed, over time as the global population and income levels grow, I expect it to get even stronger. That growth may not always be smooth. During the pandemic, for example, many hospital procedures were delayed, which led to sales falling. That could happen again in future.
But I reckon the long-term demand outlook is good and Smith & Nephew should be well-positioned to benefit from this.
Some of its products are unique, giving it a competitive advantage. The company is also trying to improve its growth rates compared to how it has been doing over the past few years. If that strategy quickens product innovation and opens up new markets, it could be good for sales and profits. When the company reports its interim results to the market later this month, hopefully they will include some indication of early progress on the growth strategy.
Growth and income prospects
One thing I like about this business model is that it tends to be consistently cash generative. Historically that has supported a generous dividend that has grown over time. Currently, the dividend yield is 2.5%. Last year’s dividend was covered by earnings more than twice over. That gives the company a margin of safety – even if earnings slip a bit, it should still be able to pay its dividend comfortably. Indeed, the company had a good track record of raising the annual dividend until 2019, but lately it has been kept flat.
If the company’s growth focus does boost profits, that could be good news for the dividend as it would enable growth to restart.
Shares to buy and hold
With the growth prospects ahead, I think the company’s price-to-earnings ratio of 16 looks reasonable. The shares have fallen 27% over the past year, so I see the current price as a more attractive entry level for me than was available a few months ago.
In the long-term, I like the business sector and growth prospects for Smith & Nephew. They are the sort of buy-and-hold shares I would consider adding to my portfolio.
