With all the uncertainty in the air, it may not seem like a good time to invest in shares right now. But the stock market crash has brought many FTSE 100 share prices down. And lower prices could lead to better value.
It’s true that some companies have been damaged by the coronavirus crisis. Just last week, for example, hotel and restaurant operator Whitbread announced a big rights issue aimed at raising around £1bn. And that dilution of existing shareholders should help the company “emerge from the Covid-19 pandemic with a strong balance sheet.”
The directors reckon the money will enable the company to “deliver on its strategy.” And that includes plans to expand the hotel business in Germany. The share price is lower, and after research, you may decide the company is worth investing in now.
Cheaper FTSE 100 shares in strong sectors
But some sectors have not been as badly affected as the hotel and hospitality industry. Defensive operators have been trading well through the crisis. And it looks likely their businesses will remain strong after the crisis fades. So, if their share prices have weakened in the meantime, it could be worth analysing the opportunity to invest.
For example, some FTSE 100 stocks look interesting to me, such as British American Tobacco, Bunzl, Diageo, GlaxoSmithKline, National Grid, Unilever and SSE. Firms like these are not suffering as much as those in vulnerable sectors, such as International Consolidated Airlines and others.
If you are investing from the age of 50, one approach is to hunt for dependable dividend-paying companies. Then you can reinvest the dividends until you retire to compound your investment. And the current crisis has stress-tested companies. Many have slashed their dividends, but not all. If you can find a company that is still managing to pay a dividend, it could be a strong contender.
I’d also look for a multi-year record of strong cash flow, revenue and earnings. Ideally, those measures should have risen a little every year along with the dividend. And if you find some FTSE 100 companies like that trading with lower share prices than before the crisis, it could be worth investigating further.
Tax-efficient wrappers
If you decide to buy some shares after doing your own research, I’d recommend holding them in a tax-efficient wrapper such as a Stocks and Shares ISA or a Self-Invested Personal Pension (SIPP). Over time, you could see gains both from a rising shareholder dividend and from an elevating share price.
At 50 now, you’ll have the best part of two decades before being eligible to collect a pension from the government. And over that time, regular investment into selected FTSE 100 shares could help you compound your way to a decent-sized investment pot of money to help finance your retirement.