If you have, say, £1k or £2k to invest, and are happy buying individual company stocks, then you are spoilt for choice with the FTSE 100 at the moment.
Long-term view
Following recent dips, the index of top UK blue-chip stocks is packed with top companies trading at bargain valuations.
Stock markets are always volatile, and this year investors have been worrying about the US-China trade war, stand-off with Iran, and now the coronavirus. However, if you are investing for the long-term, by which I mean anything up to 50 years, you can afford to ignore these short-term ups and downs.
Personally, I’m attracted to solid companies selling products that ordinary people will need far into future, and by that yardstick, I think you will struggle to do better than buy household goods giant Reckitt Benckiser Group (LSE: RB) inside a tax-free Stocks and Shares ISA.
It offers a stream of everyday brands, many of which you are likely to find in your own kitchen and bathroom. We’re talking about Dettol, Strepsils, Airborne, Air Wick, Calgon, Clearasil, Cillit Bang, Durex, Vanish and more.
Global hero
It doesn’t only sell these to UK customers but sells its products in more than 120 countries around the world. As well as its global products, Reckitt Benckiser also offers ‘local hero’ brands that may offer faster growth and higher margins.
The Reckitt Benckiser share price usually trades at a premium valuation, typically around 22-24 times earnings, because investors are willing to pay extra for a quality long-term keeper like this one. Currently, it is relatively cheap by its own standards, trading at just 18.3 times earnings. That is due to a recent patchy performance, with the stock trading 8% lower than three years ago.
Its most recent trading update, in October, show steady third-quarter growth of 1.6%, but weakness in its Health division (Hygiene Home is still growing nicely). CEO Laxman Narasimhan pinned Health’s “disappointing” performance on more cautious retailer seasonal purchasing patterns in the US, and challenging market conditions in China.
50 years is a long, long time
I’m not too worried about this, remember, we are looking to buy and hold this stock for anything up to 50 years. In fact, I see this as a good opportunity to buy a relative bargain price, then bed in and wait for the recovery.
Reckitt Benckiser continues to invest in its market-leader brands to build the business for the long term, and is working hard to boost its operational performance. Turning around its Health division could take time — Barclays’ analysts reckon three years, but they also said that success could lift its share price “significantly”.
While you wait, you benefit from the 2.7% yield, nicely covered twice by earnings, which gives management plenty of scope to increase the payout over the longer run. This passive income stream should continue to climb over the years and decades. I would buy and hold Reckitt Benckiser with the aim of holding it until retirement and beyond.