I think right now’s a great time to buy shares. Interest rates look set to fall this year and I expect this to send share prices higher.
As a result, I’m looking to make the most of opportunities while they’re still there. And that applies to dividend shares as well as growth stocks.
100% returns
Doubling an investment over 10 years implies an average return of 7% a year. That’s slightly above the long-term average for the FTSE 100.
At the moment, I’m optimistic this is a realistic possibility. With interest rates still at their highest levels for over a decade, I think share prices are conducive to higher long-term returns.
That’s not going to be the case indefinitely. Interest rates look likely to fall this year and when they do, I’m expecting share prices to go higher, making buying less attractive.
To some extent, I think the market’s pricing this in already. So I’m looking to get investing while there are still opportunities that look attractive to me.
A high-yield Dividend Aristocrat
One candidate is Primary Health Properties (LSE:PHP). The FTSE 250 real estate investment trust (REIT) comes with a 6.65% dividend yield and a strong track record.
During the last decade, the company’s increased its dividend by around 3.5% annually. If that continues, anyone who buys the stock today will average over 7% a year over the next 10 years.
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The risk of unpaid rent is low for a landlord whose main tenant is the NHS. But investors should be more cautious about the company’s debt profile with interest rates at elevated levels.
This brings a risk of shareholder dilution and a possibility of a dividend cut. But as long as this doesn’t get too far out of hand, I think shareholders should do well.
A tech monopoly
If I’d bought shares in FTSE 100 property platform Rightmove (LSE:RMV) a decade ago, I’d have an investment worth more than twice what I paid for it. Could the stock do the same again?
I think so – the company’s low capital requirements allow for significant share buybacks to boost growth. Over the last decade, earnings per share have gone from 10p to 24p.
Rightmove has a dominant market position, but this might be under threat from US rival Costar Group. The company has acquired OnTheMarket to compete in the UK property sector.
That’s a risk shareholders should be aware of, but Rightmove’s entrenched position means it’ll be hard to displace. As a result, I think it has a decent chance to double again in a decade.
Growth
There’s more than one way to aim for a 7% annual return over a decade. It can either be from a company that distributes its cash, or one that retains and reinvests it.
Either way, the key is growth. Most stocks don’t offer a return that will allow them to double in value in 10 years immediately – but working out which companies will grow enough to do this is crucial.
