My approach to long-term investing is based on buying and holding shares in quality businesses I think could have a prosperous future. I like to do that when they are selling for prices I find reasonable and give me a margin on safety when to comes to what I see as the intrinsic value of a business.
Based on that approach, here are five FTSE 100 shares I would consider adding to my portfolio at the moment and keeping it for years to come.
British American Tobacco
British American Tobacco is the giant behind brands such as Lucky Strike. That gives the company pricing power, which it can use to generate substantial profits and free cash flows. Last year’s post-tax profits came in at £7.0bn. The company has raised its dividend annually for over two decades and the yield stands at 6.3%.
The key risk I see is declining cigarette sales in many markets. But pricing increases may help maintain profitability to some extent, while the company is growing its non-cigarette revenue streams.
Unilever
Another company with a portfolio of premium brands that gives it pricing power is Unilever, the owner of Dove and Surf among others. Rampant cost inflation threatens profit margins in the short-term and helps explain why the Unilever share price has drifted down 3% in the past year.
But I reckon the company’s pricing power can help it combat inflation. Meanwhile, its huge customer base and focus on everyday product areas with ongoing demand mean I expect the company to continue generating profits for a long time to come.
Howden Joinery
Uncertainty in the economic outlook has raised fears that demand for building products will fall. Combined with the potentially negative impact of inflation on profits, that helps explain why shares in Howdens Joinery have fallen 27% in the past year.
That puts them on a price-to-earnings (P/E) ratio of 12, which I find attractive for a business of this quality. It has a large customer base, well-established trade relationships and I expect demand for building materials to be resilient in the long term, even if there are ups and downs. These FTSE 100 shares yield 3% to boot.
Legal & General
The financial services group Legal & General is also trading on a P/E ratio of 12. Its well-known brand, long history and expertise all help it attract and retain clients.
There could be risks ahead, such as lower profit margins on policy renewals due to rules introduced this year. But insurance has attractive economics as a business. Legal & General has been good at paying chunky dividends. If the company delivers on its stated plan, it will increase its payout annually for the next several years.
B&M
Investor sentiment has weakened on B&M, due to executive changes that will see a new generation of leadership. That has pushed shares in the discount retailer down 27% over the past year.
That means these FTSE 100 shares yield 4%, an attractive passive income opportunity for my portfolio. Meanwhile, I think the growth story here remains attractive from a long-term perspective. B&M has a proven formula in discount retailing. A worsening economic environment could make that more not less attractive to many shoppers.
