I am a long-term investor, so I aim to buy shares that I can hold for years or even decades. Even among the ranks of FTSE 100 shares, though, some businesses come and go.
Here are 10 FTSE 100 businesses I think have the potential to thrive in coming decades – and why right now I would be happy buying shares in some but not all of them.
Long-term outlook
In a changing world, some businesses go by the wayside. But others go from strength to strength.
US Dividend Aristocrats Procter & Gamble, 3M, Johnson & Johnson, and Coca-Cola have all raised their dividend annually for at least 60 years.
What do successful companies like these have in common?
They all have large end markets – billions of people get thirsty or need a plaster sometimes. Each company has at least one competitive advantage that sets it apart within that market, giving it pricing power. That might be a registered trademark like 3M’s Post-It Notes or distribution network such as that set up by Coke.
Durable FTSE 100 shares
On this side of the pond, I think some leading blue-chip companies have similar characteristics.
Among FTSE 100 shares, that includes Procter & Gamble’s rivals in the consumer goods business, Unilever, Reckitt, and Haleon. It also includes medical firms, such as GSK and AstraZeneca.
With unique brands including Guinness and its own decades-long streak of annual dividend increases, I see similarities between drinks maker Diageo and Coca-Cola. I expect it to stay around for the long term.
People need somewhere to buy such consumer goods. FTSE 100 shares Tesco and Sainsbury could both be with us for a long time.
Utilities often have a natural competitive advantage due to their geographic monopoly or installed network. National Grid, United Utilities, and Severn Trent fit this mould.
Of those 10 companies, incidentally, Unilever, Tesco, and Sainsbury were among the original FTSE 100 shares when the index was created in 1984. Diageo forerunner Distillers, Reckitt’s predecessor Reckitt & Colman, and several companies that ultimately merged to form GSK were all also on the first incarnation of the index.
Should I buy?
Past performance is not a guide to what happens next, however. Some of the other original FTSE 100 shares from 1984 later vanished without trace, such as MFI Furniture.
But I think proven businesses with an enduring audience and compelling competitive advantage have a good chance of standing the test of time.
They still might not make good investments for me, though.
Why?
The success of an investment partly depends on what price one pays for it, no matter how great the business.
For example, I think Diageo is a brilliant business. But with a price-to-earnings (P/E) ratio of 22, the company valuation is still not tempting enough for me to buy the shares. The same goes for AstraZeneca, with its P/E ratio in the sixties.
Finding a company that will stand the test of time well is only one part of what makes for brilliant investing. It is also important only to buy such robust FTSE 100 shares when their price offers me good value.
That is why I am keeping an eye on all 10 companies to see whether they are on offer at an attractive price when I also have spare money to invest.
