The key to successful investing is to only buy stocks that you’d be confident to hold for a minimum of five years although, ideally, 10 should be the targeted timeframe. If you’re confident you’ve picked a winner then you can expect the share/s in question to ride out any temporary price volatility and reward you with some chunky gains by the time you come to cash out.
Heck, if it’s a strategy good enough for legendary investor Warren Buffett, then it’s good enough for me. On one of his famous lectures, the Sage of Omaha said: “I want a simple business, easy to understand, great economics now, honest and able management, and then I can see about in a general way where they will be 10 years from now. If I can’t see where they will be 10 years from now, I don’t want to buy it!”
Of course forecasting how well Firm A or Company B will be doing in a decade isn’t an easy task, given the complexities and fast-moving nature of the global economy. If you follow Buffett’s advice by picking
A stock that I love
Take Barratt Developments (LSE: BDEV), for example. It’s a business whose share price took a mighty whack in 2018 as fears over the botched Brexit process, and how a no-deal withdrawal from the European Union could smack homebuyer demand in the near-term, and beyond.
As an owner of Barratt shares myself, though, I wasn’t disturbed by this heavy weakness. Looking at the business over a long-term time horizon I remained convinced, as I still do, that the homebuilder has what it takes to still deliver titanic shareholder returns in the long-term.
Why? Housing is, needless to say, an essential commodity and the country’s biggest housebuilder by volume is well placed to capitalise on our need to buy a home. As Buffett would no doubt agree. Simple, right?
Sure, there’s other things to consider, like the probable strength of house prices in the coming years. Though Barratt and its peers shouldn’t face a problem in this regard. Government talk about addressing the country’s homes shortage remains just that because of the amount of restrictive red tape hampering build rates. And all the while the UK’s population continues to grow. This is why the National Housing Federation estimates that 340,000 new homes a year are needed between now and 2031. Just 159,617 properties were put up in 2018.
8% dividend yields!
It’s no surprise, then, that City analysts expect earnings to keep rising at the firm for the foreseeable future, then. Predicted advances of 3% and 2% are forecast for the years to June 2019 and 2020, respectively, figures which while not outstanding are still expected to support Barratt’s plan to keep on paying special dividends through this period.
And so total dividends of 45.3p per share for this year and 46.9p for the following year are predicted, numbers that yield a scintillating 7.9% and 8.2%, respectively. The housing sector’s ability to keep thriving like these shows what rock-solid investments the homebuilders are. And I expect them to continue over the next decade too.