The FTSE 100 hit an all-time record on Wednesday, of 7,934 points. How much longer will it be before it finally smashes through the 8,000-point level?
Now the Footsie is on the rise, there’s something for long-term investors to take to heart. If everyone invested for the long term and ignored short-term sentiment, this should happen every day. What do I mean? Well, instead of lurching forwards and backwards, based on emotions and daily headlines, wouldn’t shares surely just inch ahead, little by little, every day?
The fact that they don’t can give private investors an advantage. If we keep our eyes on the long term, we can take advantage when irrational markets cause share prices to fall.
Dividends
Now shares are on the up, I still prioritise dividends. And 2023 could hit an all-time record, with forecasts suggesting a total payout upwards of £85bn.
Mining stocks saw cuts in 2022. But Rio Tinto is on a forecast dividend yield of nearly 9%. That comes as China has abandoned its zero-covid lockdown policy and is opening up to the world again. I expect demand to rise, and commodities stocks are among my priorities.
Housebuilder shares are still down as we face a property squeeze. Taylor Wimpey, for example, is on a forecast yield of 7.5%. And at Barratt Developments, we’re looking at 7.9%.
Defensive shares
Defensive shares still look weak, and that includes the builders. I really can’t see the UK’s chronic housing shortage ending any time soon.
Some stocks are defensive for specific reasons, like British American Tobacco and Imperial Brands. Addictive products, and barriers to entry through just being so big, make this a pair of cash cows. Analysts expect dividends of around 7%.
Companies providing essential good and services are high on my list. That includes Tesco, the UK’s biggest groceries retailer by a fair margin. Energy distribution is also essential, and I can’t see anyone usurping National Grid‘s effective monopoly.
Vital sectors
What’s the most essential sector of the economy? I’d argue it’s the financial sector. Without it, nothing else could function. Banks have been hammered, but they’re vital for long-term economic health. And right now, I think they’re still cheap.
Lloyds Banking Group is on a forecast price-to-earnings (P/E) multiple of only eight, with a 4.5% dividend yield. And the P/E at Barclays is lower, just 6.5, with a 4% yield. I rate those as cheap.
Insurance shares are down too. There’s a dividend yield of 6.7% at Aviva, with a 2023 forecast P/E of under nine. Legal & General is on a similar valuation.
Wait a minute…
Do you see anything that most of these stocks have in common? That’s right, most are in vital sectors, have defensive qualities, and offer high dividends. They match all three of my criteria.
All of these carry individual risks that I don’t have the room to examine here, and investors should do their own research. But if I had enough money, I’d probably buy all of them right now. As it is, I have them on my list for when the cash becomes available.
