When looking for UK shares that I’d buy and hold for the long term, it’s important to consider company strategy, stability, and strength. For instance, I’d look at if the business has a coherent long-term strategy that could boost its share price and dividends. But at the same time, I’d look for a rock-solid balance sheet that could help it during testing periods.
Top UK shares
One such UK share that I’d buy in February is British housebuilder Persimmon (LSE:PSN). There’s much to like about this FTSE 100 business. For one, there is a chronic shortage of homes in the UK. The government remains supportive of the industry and has an ambition to supply 300,000 new homes per year by the mid-2020s. But last year just 216,000 homes were built. It’s clear that more housing needs to be built and Persimmon looks well-placed to help deliver some of the much-needed housing supply. In fact, Persimmon delivered almost 117,000 new homes in the last eight years.
A word of warning though. Demand for housing is affected by mortgage availability and interest costs. If the Bank of England decides to raise interest rates much further, it could hamper housing demand in the short term. Tighter lending criteria could also have a similar dampening effect.
9.5% dividend yield
That said, here’s what I really like about this share. Persimmon’s strategy includes buying high-quality land but only when it meets its strict criteria. This disciplined approach has helped the group achieve a market-leading return on capital of over 25%. It’s also a cash-generative business, and much of that excess cash is returned to shareholders in the form of dividends. As such, it currently boasts a dividend yield of 9.5%. That’s impressive.
Although the past isn’t always the best guide, over the past 10 years, Persimmon shares achieved an annual return of 20% per year. That figure includes dividends, but is nonetheless impressive. I’d say it’s a quality UK share worthy of my Stocks and Shares ISA.
Laser-focused UK shares
Another strong performer I’d buy right now and hold for 10 years is a much smaller business called Somero Enterprises (LSE:SOM). This AIM-listed share has achieved a phenomenal 49% annual return over the past decade. That’s enough to turn a £1,000 investment into a whopping £54,000 over a decade. So what does it do? Somero manufacturers laser-guided equipment to make perfectly level concrete floors. Earnings are growing steadily and it’s well-placed to capitalise on several growing markets. For instance, its machinery is used to make floors for data centres and large warehouses. With the growth of e-commerce and cloud data storage, it looks like Somero could be busy for some time.
Granted, it does operate in a cyclical industry. So, earnings could suffer in the short-term in the event of an economic downturn. That said, I reckon Somero has a solid balance sheet that should shield it in difficult times. It’s cash-generative, has little debt, and operates with an impressive 33% profit margin. Finally, it even offers a forecast dividend yield of 7%. That’s not as high as Persimmon, but with the average FTSE 100 share yielding 3.2%, I’m not complaining.