For my Stocks and Shares ISA, I’m looking for investments to hold for the medium to long term. To me, that means aiming to hold for around five years and longer — sometimes much longer. However, nothing is certain. And there may be occasions when I’ll sell a stock sooner.
My focus is on businesses with sound finances and the potential to grow their operations. And when I’ve found one that interests me, I’ll look for a valuation that makes sense for a long-term investment in the shares. In that approach, I’m aiming to copy successful investors such as Warren Buffett and others.
Small but steady
Right now, NWF (LSE: NWF) has caught my attention. The company has a small market capitalisation of just £111m, or so. But I’m impressed by the firm’s long record of steady trading. It has consistent and growing annual cash inflow. And it has achieved smooth shareholder dividend payments over many years. The compound annual growth rate of the dividend is running at just under 5%.
With the share price near 225p, the forward-looking dividend yield for the trading year to May 2023 is around 3.4%. However, it’s possible for the directors to trim, or cancel, dividends at any time if the business runs into difficulty. But that’s true of all companies.
NWF distributes fuels, food and animal feeds. And the common theme is delivering stuff with lorries. The company sells and distributes domestic heating, industrial and road fuels. It warehouses and distributes clients’ ambient groceries (which can be stored at room temperatures) to supermarkets and other retail distribution centres. And it develops, makes and sells animal feeds and other agricultural products.
Essential everyday services
I like NWF’s business. The company provides essential everyday services that are unlikely to go out of favour. But it does have competitors, as do most businesses. Nevertheless, May’s trading statement was robust with the financial performance ahead of the directors’ previous expectations.
Volatile fuel markets and other commodity inflation have been causing some challenges for the business. But as a distributor, NWF is in a position to adjust selling prices to maintain margins.
However, profit margins are thin in the sector and NWF has quite a large debt load with net gearing running just below 70%. The business could get into trouble in any future economic downturn. However, I see its business sectors as resilient and leaning to the essential end of the market. For example, NWF performed well through the pandemic.
Perhaps I’ll face a bit of a bumpy ride holding the stock for the long term. Indeed, any number of operational challenges could make life difficult for the business. But I’m encouraged by the company’s steady focus on expansion. And I like its ambition to consolidate the markets in which it operates via a programme of acquisitions.
I’m watching closely and will likely consider the stock for my ISA when I next have spare cash.