Given the long-term success of investors such as Warren Buffett and Nick Train, the kind of buy-and-hold approach to investing they advocate is not one to be ignored. I’ve picked out two shares from the FTSE 100 that I’d be comfortable purchasing and holding for the next 10 years.
The chemicals giant
Croda (LSE: CRDA) has a yield of 6.23% – boosted by a special dividend this year – and its forward yield is the same percentage, so it certainly offers income investors a generous return.
The investment case for the chemicals company looks compelling to me. It’s a global firm, selling in 38 counties and focusing on four massive markets: personal care, life sciences, performance technologies and industrial chemicals The model is capital-light, provides premium products and the company has a close relationship with its customers, which means it’s hard to replace.
The group achieves a return on capital employed (ROCE) of 18.2%, which I consider to be quite high, although the downside is the level has fallen for several years in a row. Nonetheless, this measurement demonstrates that it’s a well-run business.
Recent results also are testament to this view. Sales increased from £1.37bn in 2017 to £1.39bn in 2018, while adjusted profit before tax grew by 6.2% and the dividend by 7.4%.
The combination of acquisitions with capital expenditure on R&D and new manufacturing capabilities, I think, means Croda is well-positioned for the next decade.
Recovering ad men
WPP (LSE: WPP) is still reeling from the departure of Sir Martin Sorrell and the shares have halved from their five-year high, which was back in 2017. The lower share price does mean now that the shares have a dividend yield of 6.23%.
The business is going through a period of change that I think will position it well for investors prepared to jump in now and hold on to the shares. There have been 44 disposals over the last 15 months, which has simplified the group and given it the opportunity to focus on the US.
WPP is in the process of selling off a large part of its data, research and consulting company, Kantar. Some 60% is being sold to Bain capital in a deal to be approved by shareholders later this month. The deal values Kantar at $4bn and WPP will use some of the proceeds of the sale to reduce debt, while an estimated $1.2bn will be returned to shareholders.
The impact of change
Given the change within the business, it’s little surprise the first-half results weren’t pretty. Profit before tax was down 43.5% and operating margins fell slightly as well.
Commenting on the results, CEO Mark Read said: “When the Kantar transaction completes, our disposal programme will have generated proceeds of c.£3.6bn, allowing us to return significant amounts to shareholders and reduce our leverage to the low end of the target range.”
With shareholders set to be rewarded from disposals, reduced debt and more focus on growth areas, WPP should emerge stronger from its current restructuring – even if right now it means the financial results don’t look particularly encouraging.