Multi-billionaire Warren Buffett, probably the world’s most famous and successful investor, follows a strategy of buying great businesses with a view to holding his shares ‘forever’.
What’s good enough for octogenarian Buffett should be good enough for an investor just starting out on the road to long-term wealth accumulation.
Today, I’m going to tell you why I think British American Tobacco (LSE: BATS) (NYSE: BTI.US), NEXT (LSE: NXT) and Fuller, Smith & Turner (LSE: FSTA) are worth consideration for a beginner’s portfolio.
British American Tobacco
British American Tobacco (BAT) is the world’s most international tobacco group. This £68bn ‘megacap’ is the fifth-largest company in the FTSE 100.
The imminent demise of tobacco companies has been predicted for decades, but they keep on delivering for shareholders. I’ve no doubt they’ll continue to do so for many years to come, as disposable incomes rise across the developing world.
BAT’s shares — priced at 3,630p at the time of writing — offer a dividend yield of over 4%. Reinvesting dividends to buy more and more shares could nicely compound the value of your investment over the long term.
(If you have an aversion to investing in ‘sin’ stocks, you may wish to read about an alternative megacap highlighted in this article.)
NEXT
Clothing, footwear and home products firm NEXT is another member of the elite FTSE 100 index. The NEXT brand came into existence in the 1980s, and key members of the board of directors have been with the company for almost as long as the brand has been around. Superb management of the business is one of NEXT’s greatest strengths.
The company has a policy of using any surplus cash to give shareholders special dividends (in addition to ordinary dividends); or, if management considers the shares too cheap, for buying back shares in the market, and thus increasing the value of the remaining shares.
NEXT’s shares are trading at 6,945p at the time of writing. If you wanted to be greedy, you could hold back and hope to see the shares at — or nearer to — management’s buyback level, which is currently 6,600p.
Fuller, Smith & Turner
Brewer and pubs group Fuller, Smith & Turner (‘Fullers’) was founded in 1845, and descendents of the founders are still major shareholders and actively involved in the management of the business today. The company is conservatively run, with a strong balance sheet, backed by quality freehold properties in London and the South East.
Fullers’ FTSE market capitalisation — £293m at a current share price of 901p — doesn’t quite reflect the company’s true size, because not all of the firm’s shares are listed on the stock exchange. If all the shares were listed, the market cap would be over £500m.
Fullers may be small compared with the likes of BAT and NEXT, but a measure of the quality of the business can be found in the company’s record of having increased its dividend every year since 1974 (at a double-digit compound annual growth rate) — a record I believe is unmatched by any FTSE 100 company.
