5 great value UK companies I’d buy in a Stocks and Shares ISA and aim to hold for decades 

Harvey Jones is getting to work on his Stocks and Shares ISA. He thinks these five firms have solid income and share price growth prospects

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I’m looking to populate this year’s Stocks and Shares ISA with UK stocks that offer long-term dividend and share price growth potential. I favour established FTSE 100 blue-chips that I hope to hold for years.

To this end I target companies with solid balance sheets, established brands, loyal customers, and a track record of increasing shareholder payouts. If their shares have dipped lately, even better, as it means I can buy them at a discounted price.

Hunting for FTSE 100 bargains

I’ve taken advantage of the big drop in the Diageo (LSE: DGE) share price. The spirits giant issued a shock profit warning in November after a huge sales drop in Latin America and the Caribbean. I snapped them up at a big discount two weeks later. Sadly, they’ve continued to slide. I’m down around 8%. 

I probably jumped too soon but I’m happy to sit back and give Diageo time to recover. That’s the advantage of investing with such a lengthy timescale.

The share price is down 23.3% over 12 months and I accept that Latin American sales won’t rebound overnight. Another concern is that Diageo’s net debt has crept up from $17.8bn to $20bn.

However, I think the sell-off has been overdone. First-half net sales fell only 0.6% to $11bn on an organic basis, while free cash flow jumped from $964m to $1.5bn. Management hiked the interim dividend 5% and completed a £500m share buyback. I think Diageo will be back. I may even take advantage of current weakness to buy more.

That is the type of stock I’m looking for today. A good company that’s had a bit of a hiccup.

FTSE 100 software specialist Sage Group has also enjoyed a strong run only to slip lately. The Sage share price is down 13.76% over the last month, although it’s still up 18.1% over the year.

First-half pre-tax profit jumped from £139m to £203m but management downgraded second-half guidance. The Market wasn’t happy but that suits me. I’ve been waiting for my opportunity for ages, and I reckon this is it.

Dividends and growth

I’d like to increase my position in Legal & General Group, whose shares dropped 9.38% over the last month as interest rate cut hopes were pushed back again. The price is down 5.09% over one year but offers an unmissable 9.1% yield. Imagine that rolling up over the years – with share price growth on top.

I’ve had my eye on pest control specialist Rentokil Initial for months too, so was a bit miffed when it jumped 13.3% on Wednesday, as news broke that activist investor Nelson Peltz had taken a significant stake. It’s still down 28.1% over 12 months, so still looks tempting to me.

Like many commodity stocks, Rio Tinto has been hit by the struggling China economy. It’s down 4.73% over one year.

Rio looks great value trading at 9.21 times earnings and yielding 6.59%. I’ll pop this in my Stocks and Shares ISA, too, when I have the cash. Then I’d put my feet up.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has positions in Diageo Plc and Legal & General Group Plc. The Motley Fool UK has recommended Diageo Plc and Sage Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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