The best UK stock to buy now and hold for 5 years

I’m looking for the best UK stock to buy now. I want to hold it for at least five years. So I need to invest in a highly profitable business.

I’ve got a demanding wishlist. I want a stable, FTSE 100 blue-chip company. I want a good dividend yield now, to compound my cash and make the most of holding long term. I also need to see a very healthy outlook for its sector. 

And the best UK stock to buy now —  for me —  will be a business that can afford to increase dividends in future.  So it must be generating lots of cash to reward shareholders. And it needs enough left over to keep improving and continue hiring the best staff. 

Not many UK stocks can fit this criteria. But I think there is one.

Fishing for profits

Kingfisher (LSE:KGF) was one of the biggest winners from the lockdowns. Its B&Q and Screwfix DIY stores were deemed essential and so stayed open when other stores closed. The massive square footage across the store estate made socially distanced shopping a breeze too. 

The Kingfisher share price bottomed out at around 130p in March 2020 when pandemic panic kicked in. A threefold increase since then surely puts it in the category of the best UK stock to buy last year. But what about now? My first worry is that a 175% share price increase to 360p makes this stock overvalued. But a P/E ratio of 12.8 is well below the FTSE 100 average of 17.3. I think it’s cheap for the value on offer here.

And the outlook? The home improvements market shows no signs of dipping as families splash out on upgrades indoors and out, on garden offices, painting, extensions and more. I say KGF is best placed to win from all of this.

This isn’t just my pick for the best UK stock to buy now, it’s also intensely personal. So there’s a risk I could have my blinkers on. Let me give you an example. 

I’ve just moved into a new house. If I was being charitable I’d say it had ‘lots of potential’. And so I’m racking up massive bills in B&Q every weekend. Why not get something back from all the money I’m putting through those tills?

Numbers up

I found a lot to enjoy in reading Kingfisher’s balance sheet. This isn’t essential, but I do love reading numbers on spreadsheets (and I know, I need to get out more).

Operating profits jumped from £276m to £916m between 2020 and 2021. Tracking return on capital is one of Warren Buffett’s favourite tools, and a way I screen for the best UK stocks to buy now. KGF has improved that metric this year to near all-time highs.

However, profits like this are likely to be a Covid-induced one-off, so I won’t get too excited.    

And while it’s sitting on £1.1bn in cash, net debt of £1.3bn is a concern, although this is vastly improved from the £2.6bn it had in 2018.  

I see today’s 3% yield rising in future. Kingfisher has good dividend cover and is making plenty of money. This is why I think it’s the best UK stock to buy now and tuck away in my ISA or SIPP.