If you have £5,000 to invest for the next 10 years, I think you should consider placing your hard-earned money in FTSE 100 testing business Intertek (LSE: ITRK).
The firm provides testing and quality assurance services for companies around the world. It makes sure any components used in the production process meet all safety and quality assurance standards, which isn’t a particularly exciting business, but it’s an essential one.
Indeed, management calculates the global market for quality assurance services is worth $250bn annually. Consumers’ concerns about product sustainability and quality is driving the growth of this market, according to the company. What’s more, Intertek’s customers can’t compromise on testing quality. So, as one of the largest, most respected and trusted businesses in the industry, I think it’s exceptionally well-positioned to capitalise on this growth.
In the first six months of 2019, the company’s revenue expanded 7% year-on-year at actual exchange rates. Thanks to operating efficiencies, the group’s profit margin increased 0.3% overall during the first half, pushing earnings per share higher by 7.9% at actual exchange rates.
Steady high single-digit growth is what investors have come to expect from Intertek over the past decade. Earnings per share have grown at a compound annual rate of 7.3% for the past six years as the company has complemented organic expansion with bolt-on acquisitions.
Ask the market for testing and quality assurance services continues to expand, I think Intertek can continue to grow earnings at this steady pace for many years to come, which is why I’m recommending the stock as a starter investment.
As well as its growth potential, the shares support a dividend yield of 1.9%, and has grown at a rate of around 10% per annum historically. As the company’s growth continues, I reckon it’s highly likely the dividend will continue to grow in line with earnings (as it has done in the past) as well.
Another company I think might be worth considering if you have £5,000 to invest is insurance group RSA (LSE: RSA). Back in 2013, RSA was struggling to survive. But thanks to management’s efforts, the firm is now stronger than it has been for years. From a loss of £347m in 2013, analysts believe net profit will hit £468m this year.
Half-year numbers show the company is well on the way to meeting this target. A strong performance at the group’s general insurance business helped it report an increase of 1% in operating profit for the first half of 2019. Net written premiums remained largely unchanged at £3.2bn.
Growth is all well and good, but what I’m interested in is the company’s dividend potential. Its robust first-half performance has allowed management to declare an interim dividend payout of 7.5p per share, up 3% year-on-year.
For the full year, analysts believe the company has the potential to distribute nearly 27p per share, which would give a dividend yield of 4.8% at the current share price. Analysts also believe it will have even more scope to grow its dividend in 2020, with a yield of 5.6% currently projected.
All in all, with the stock currently trading at a forward P/E of just 12.2, RSA looks to me to be a cheap, growing income play that could be worth adding to your portfolio today.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Intertek. 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.