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Why I’d buy this solid FTSE 100 stock for long-term returns

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One of the first and most important things I learned when I started investing in the stock market was that investing for the long term is more likely to bear fruit.

Many people enter the stock market with the idea that they have the ‘next big thing’ that will make them millions.

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While this may prove to be a fruitful plan for an isolated group, there are many, many more unhappy endings for those that enter for short-term success.

The general rule of thumb I’ve come across is that once you make an investment you should be ready (and financially comfortable enough) to sit on it for at least five years.

That mantra is particularly true in the heavily uncertain times we live in politically as a result of Brexit, and while recent months have proven UK stocks to be resolute in the face of that uncertainty, who knows what yields could be without the heavy burden of the shifting political landscape?

While each individual investor’s appetite for risk is unique, I’m firmly on the side of looking for slower yet steadier returns for my investments, and that’s why I recommend buying shares in alcoholic drinks company Diageo (LSE:DGE).

Growth history

Diageo, whose brand portfolio includes the likes of Guinness and Tanqueray gin, has a solid history of growth and there appears to be further potential down the road. It sells to a diverse variety of geographical regions, thus making it the ideal stock to ‘Brexit-proof’ your portfolio in my opinion.

The FTSE 100 company has long been considered a solid performer without setting the world alight in terms of high yields.

It is in a pretty strong position in terms of cash, and in January announced a decision to increase its share buyback programme, taking its total for the year ending June 30 to £3bn.

That was mostly funded by the offload of 19 drinks brands to US firm Sazerac, with Diageo pointing towards currency headwinds as a potential drag on some products in the US.

In terms of its current price-to-earnings (P/E) ratio of 25, some commentators may view it as overvalued, but there is little to suggest that demand for its products is on the wane. Quite the opposite, in fact, as the trend suggests a move towards more premium products within the sector.

Alcohol-free

Many have predicted the demise of alcoholic drinks companies as people become more aware of the potential effects of alcohol on the body, but as tobacco firms such as British American Tobacco have done, Diageo is now making a move towards products that are more health-conscious.

It has been expanding into a range of alcohol-free drinks, and I think this foresight will allow it to evolve and respond to consumer trends within the industry and remain a key player within it.

And with strong fundamentals to back that up, for me there doesn’t appear to be a whole lot of evidence to suggest anything other than solid outperformance for Diageo in the months and years to come.

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And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

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ConorC has no position in any of the shares mentioned. 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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