Trying to make a million from shares is not impossible if you save regularly and invest your money in high-quality, defensive investments.
BHP Billiton (LSE: BLT) is an excellent example of a company that can help you make a million in the market. While the miner might not be the most defensive business around, its sheer size and scale give it a considerable advantage over competitors, which means that it is likely to be around for many decades to come.
Over the past five years, it has transformed itself. Following steep falls in the prices of oil, coal, copper and iron ore, the four key commodities produced by the business, management has slashed costs and capital spending.
The result is that BHP is now a much leaner, more profitable operation than it was five years ago, and shareholders are profiting as a result. For the year ended 30 June, the group generated operating cash flow of $16.8bn and free cash flow of $12.6bn. This allowed the company to reduce debt by 37% year-on-year to $16bn while also paying out $4.4bn to shareholders via dividends. This healthy cash generation is why I believe BHP could help you make a million.
As part of its restructuring process, it rebalanced its dividend so that the company will only pay out as much as it can afford. This means shareholders are set to receive substantial cash distributions in good years.
For the fiscal year ending 30 June 2018, analysts have pencilled in a dividend payout of 66.1p, giving a dividend yield of 4.7%, although this forecast could be revised substantially higher if commodity prices stay elevated.
Indeed, the price of copper is currently at a two-year high, and the price of oil is trading at a level not seen since 2015. So, it looks as if BHP may return more cash than the City expects during 2018.
Another company I’m positive on is cruise provider Carnival (LSE: CCL). It is, in my view, a relatively defensive business thanks to its leading position in the cruise industry. With over $34bn of ships and other assets, the group has scale that would be almost impossible to replicate, allowing it to generate fatter profit margins than its peers. For example, during the past five years, Carnival made an average operating margin of 13.4%, while Royal Caribbean Cruises only managed 10.8%.
For 2018, City analysts are expecting the company to report earnings per share of $4.30, up nearly 210% from the $1.40 reported for 2013. The firm is benefitting from the rising demand for cruises from Asia as well as Europe’s ageing population. These tailwinds should enable Carnival to continue to grow at its current rate for many years to come.
At current levels, the stock is trading at a relatively appropriate forward P/E of 15.6, and it supports a dividend yield of 2.6%. Management is also returning cash to investors by way of a stock buyback.
How you can make a million from shares
Companies that can throw off cash year after year make the perfect investments and are key if you want to make a million from stocks.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Carnival. 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.