Many new investors are drawn to buy-to-let investing. They often see it as less risky than putting their savings in stocks and shares. Perhaps it’s because there is comfort in seeing their holdings in the flesh.
For several reasons, I have serious doubts about investing in a buy-to-let property.
Four years ago, George Osborne – at the time, the Chancellor – made sweeping amendments to the tax system, which to a degree penalised buy-to-let landlords. Anyone purchasing a home that is not their main residence now has to fund a stamp duty surcharge. Further to this, landlords are also effectively taxed on their turnover, rather than profit.
As a consequence, a Stocks and Shares ISA will normally be much more efficient than an investment property.
Another reservation I have about buy-to-let properties is the costs involved in holding the investment. Surveyor fees, estate agent fees, and the cost of repairs all add up over time.
The biggest issue for me, however, is that it ties up an investor’s equity. If you’ve ever tried selling a property, you’ll understand what a headache it can be. Imagine having to do this in a financial emergency.
I’d rather hold an uncomplicated Stocks and Shares ISA, with liquidity and low fees.
Here is a share that I’d consider under such an arrangement.
Pop the fizz
Drinks giant Diageo (LSE:DGE) looks like a much better opportunity for me. The company’s products are sold in more than 180 countries around the world and includes an impressive portfolio of brands, such as Guinness, Smirnoff, Baileys, and Johnnie Walker.
Its international diversity could reduce risk, and may mean the company could outperform the FTSE 100 in the future, as it is exposed to fast-growing emerging markets.
Diageo is focused on delivering quality sustainable growth and expanding margins, which it hopes to achieve with increased efficiency.
In a trading update released in September, it stated that it expected organic net sales growth between 4% and 6%, and organic operating profit approximately 1% higher than organic net sales.
When it comes to sales growth, Diageo seems to know what it’s doing, with net sales tending to increase year on year.
Likewise, the group’s dividend has remained stable, with increases every year. The prospective dividend yield is currently 2.16%.
Although the Diageo stock price has dropped by 10% in the past few months, it is still trading at a price-to-earnings ratio of 24.
Diageo has been undergoing a £4.5b share buyback. The company has reported that the purpose of the buyback is to reduce the share capital of Diageo, with each repurchased share being cancelled. It hopes to complete the buyback programme between 2020 and 2022.
Undoubtedly there are cheaper shares out there. But there aren’t many others with such a strong portfolio of brands, a sustainable and growing dividend, proven track record of sales growth, and international diversity.Â
I believe Diageo is a share to buy and hold, which could make it a perfect holding for those thinking of retirement.
I’ll drink to that!