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Why Unilever plc and Diageo plc could be the best long-term stocks in the FTSE 100

If I was to pick out stocks to hold for the very long-term, there are several things I’d look for.

First, I’d look to capitalise on a long-term investment theme. One such theme that comes to mind is the powerful growth of the emerging markets, and rise of wealth and spending power in these regions. Indeed, this is such a powerful theme that analysts at McKinsey have called it “the biggest growth opportunity in the history of capitalism.”

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Second, I’d seek out high-quality companies that were capable of generating consistent revenues and profits. And third, I’d look for companies with excellent long-term dividend track records, capable of providing consistent payouts in the future. Here’s a look at two stocks that fulfil that criteria. 

Unilever 

With a portfolio of world-class brands such as Dove, Persil and Lipton, Unilever (LSE: ULVR) looks well placed to capitalise on the rising wealth of emerging market consumers, in my opinion. With billions of such citizens set to enter the world’s middle class in coming years, I believe demand for its brands should remain robust. It now generates around 60% of its sales from emerging markets, and saw underlying sales growth of 6.3% from these regions during the last quarter. 

It fulfils my other criteria too. Selling products such as detergent and deodorant, the group is able to generate consistent revenues, no matter the state of the global economy. Furthermore, the company has a strong track record of increasing its dividend, and there’s no reason to believe it won’t continue to reward shareholders with dividend growth going forward. 

Are Unilever shares a buy right now? The stock has had a strong run this year, and is up around 30% year-to-date. Most of these gains can be attributed to Kraft’s bid for the company in February. The share price has retreated a little recently, and at the current price is trading on a forward P/E of 21.8. That valuation certainly looks more appealing than valuations in recent months. But personally, I’d be inclined to wait patiently for a better buying opportunity, in the hope of buying at a bargain valuation. 

Diageo

Another blue-chip company that fits the bill is Diageo (LSE: DGE)

With a focus on premium spirits such as Johnnie Walker, Haig Club and Tanqueray, the alcoholic beverage manufacturer has positioned itself well to appeal to the aspirational nature of the emerging markets consumer. Indeed, Diageo believes that as emerging market incomes continue to grow, its premium spirits will become available to more than 730m consumers over the next decade. That’s a theme I certainly want to capitalise on. 

Selling its products in more than 180 countries worldwide, Diageo is capable of generating relatively consistent sales and profits, irrespective of economic conditions. And the company has an excellent dividend growth track record, having almost doubled its payout over the last decade.

Diageo shares have enjoyed a strong run this year, rising around 23%. At the current share price, the stock trades on a forward P/E of 22, with a prospective dividend yield of 2.6%. Although I own the stock, those metrics don’t jump out at me as great value right now. I won’t be selling my shares any time soon, but I’ll be waiting for a pull-back before adding to my position.  

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Edward Sheldon owns shares in Diageo. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Diageo. 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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