What would I choose if I could invest £5,000 today in five stocks, and had to keep them for my entire investing career?
Dividend record
An investment trust would be there, chosen from the top long-term dividend payers. Partly thanks to rules allowing investment trusts to hold back cash in better years and use it to top up dividends in leaner years, there’s a handful of UK trusts that have managed to raise dividends for 40, 50, or more years in a row.
My pick is Caledonia Investments, which has managed the feat for 52 years in a row. Though yields are modest at around 2%, the trust is easily achieving its target of beating the FTSE All-Share Total Return over the long term, and its shares are on a discount to net asset value of nearly 20%.
Big oil
While small oil stocks are popular, I think the best approach is to buy shares in Royal Dutch Shell (or maybe BP), and leave them there to accumulate decades of dividends (which I’d reinvest in more Shell shares, of course).
Oil companies get flack for environmental reasons and there’s a growing movement towards renewable energy sources, but I reckon the chances of our weaning ourselves off the black stuff before I surrender my own carbon reserves for recycling are slim-to-none.
Shell’s 6%+ dividend yields are among the most desirable on the market, I think, and a chunk of my pension cash should be in Shell shares before the year is out.
A bank
I still think there’s a great investment to be found in the UK banking sector. Out of the EU, London can never regain its premium standing in the banking world, but that doesn’t mean UK-focused banks won’t keep generating year upon year of cash to hand out to shareholders.
My pick is Lloyds Banking Group, which I already hold, with its progressive 6% dividend. The shares have been up and down due to Brexit and PPI pressures, but on price-to-earnings multiples of only around half the FTSE 100 long-term average, I still can’t see them as anything other than a long-term bargain.
Insurance
It’s perhaps strange to include two financials in a five-stock portfolio, but I see insurers and banks as fundamentally different beasts. Insurance can be volatile in the short term, but over the long term I’ve done pretty well from the sector, having invested in a number of different companies over the years.
Right now, the one I own and the one I’d go for again in a starter portfolio is Aviva, whose balance sheet looks good and whose 7%+ dividends just draw me in.
Housing
My fifth pick might seem strange considering we’re supposedly in a property slowdown, but given that the demand for new homes has been outstripping the supply for as long as I can remember, there will always be room in my portfolio for a housebuilder.
Currently I own Persimmon shares, but if choosing from scratch today I think I’d go for Taylor Wimpey. Earnings growth has slowed after a phenomenal few years, but business is still generating the cash for paying special dividends, and the shares are on a low valuation that looks like a steal to me.
Ask me in six months, and I expect I’ll have all five of these in my portfolio.