When I set out to build my portfolio one of the themes I was most wary of was disruption. We live in an ever-changing world, and it’s becoming harder and harder for a company to survive for the long term. The average company lifespan is getting shorter and as a result, investing with a long view is becoming harder. Picking the next trend or business to take off has always been a risky game, which is why the best investors always invest in those companies with long-term potential. But investors are facing an uphill struggle because of that contracting lifespan.
With this in mind, I picked out two companies I believe are well positioned to weather long-term trades. These companies are Standard Life (LSE: SL) and Prudential (LSE: PRU).
Businesses built to last
Standard and Prudential’s main line of business is long-term insurance and savings. They’re two of the largest companies in the market and this size means consumers are more attracted to their products. If you’re trusting a company to look after your money for the next few decades, you want to be sure that the business will survive for the duration. What’s more, the long-term nature of these companies’ specialities means that managements have some level of clarity on how they will perform not just in the near future but further out. Many managers would love to have this kind of clarity on their business’s outlook.
This clarity is also perfect for investors. Standard and Prudential’s managements can set out clear dividend policies that are more likely to be maintained over a long timescale, and there’s a reduced risk of sudden payout cuts.
Shares in Standard Life and Prudential currently support dividend yields of 5.5% and 3% respectively. While it’s the lower of the two, Prudential’s dividend payout is covered three times by earnings per share, so there’s plenty of room for additional dividend payout growth.
Unloved growth stocks
Business longevity and dividends aren’t the only reasons I like Standard Life and Prudential. These two companies are also well placed to grow over the next few decades as the world’s population continues to grow and age.
According to a study conducted by Towers Watson two years ago, the size of the UK pension market is expected to triple in value by 2023 to £50bn per annum. This figure could be even greater if the government introduces more radical changes to the pensions system. And it’s not just the UK pension market that’s set to grow rapidly during the next decade.
The average growth rate of pension assets in the 16 largest markets was 8% on an annualised basis between 2004 and 2014 and analysts expect this steady growth rate to continue. Considering the value of assets inside these funds exceeds $36trn, a growth rate of 8% per annum is nothing to sniff at.
So overall, I’m attracted to Standard Life and Prudential thanks to their size, income and growth outlook.
