Why I’d be happy to buy and hold BAE Systems plc until 2048

What will my portfolio look like by the time I reach retirement age? Of course I hope it will be a lot larger. But I’d also like to think that I’ll be able to spend less time investing, and more time simply ‘harvesting’ my dividends.

One way to achieve this goal is to pick stocks today with the potential to deliver steady growth over several decades. I reckon I’ve identified two possible choices.

A buy and hold opportunity

Shares of FTSE 100 defence group BAE Systems (LSE: BA) are unchanged so far this year. I reckon this could be a buying opportunity.

In my view, this diversified group is a classic buy-and-forget stock. Its entrenched position in several major markets means that in my view, this business is likely to outlive me.

Today’s half-year results suggest that BAE is currently trading well. On a constant exchange rate basis, the group’s sales rose by 4% to £9.6bn during the first half of the year. Underlying operating profit rose by 11% to £945m, while underlying earnings were 13% higher at 19.8p per share.

Growth + income

BAE’s order intake during the first half was £10,650m, 51% more than the £7,053m logged during the same period last year. The group’s order backlog of £42.3bn is equivalent to more than two years’ revenue, providing good future visibility.

Chief executive Charles Woodburn expects defence spending to increase in several markets over the medium term. He confirmed that the board expects to report underlying earnings growth of 5%-10% in 2017.

Taking the mid-point of this range gives a profit figure of 43.3p per share, putting the stock on a forecast P/E of 14. Dividend growth is expected to be about 3% this year, giving a payout of 22p per share, or a yield of 3.6%.

I don’t think that BAE stock is outstandingly cheap. But I do believe that the group’s scale and mix of businesses should enable it to deliver steady growth for the foreseeable future. That’s why I’d be happy to hold onto my BAE shares until I hit retirement.

I’d buy this stock too

BAE isn’t the only company I’d be happy to buy and forget. Anglo-Asian banking giant HSBC Holdings (LSE: HSBA) made headlines this week, with a promise to buy back an extra $2bn of its shares. The bank has now committed to repurchasing $5.5bn of stock, in a bid to return surplus capital to shareholders and boost earnings per share.

Personally, I’ve some reservations about HSBC’s decision to buy back shares when its stock is trading at a premium to book value and at a post-2009 high. I suspect the move is designed to placate long-term shareholders whose returns have been poor.

Like BAE, HSBC is no longer a bargain stock. But the bank’s scale and financial strength suggest to me it will continue to do well over the coming decades. I’m also keen on long-term exposure to Asian growth.

Earnings are expected to rise to $0.65 per share this year, providing renewed cover for the bank’s $0.50 per share dividend. In my view, the resulting 5% yield is nearly as good as an annuity income. I’d be happy to tuck a few of these away for the next 30 years.

I'd buy these retirement shares

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Roland Head owns shares of BAE Systems. The Motley Fool UK has recommended HSBC Holdings. 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.