In an article yesterday, I explained that when stock-picking, I carefully look for reasons not to buy into a company. If anything smells fishy, I simply move on without buying. For me, the best stocks to own are those backed by big, beautiful businesses. That’s why I often hunt for cheap shares in the UK’s FTSE 100 index. Here are three stocks that I don’t own, but would happily buy today to keep for a decade or more.
Solid stock: Unilever
Unilever (LSE: ULVR) is a consumer-goods Goliath. Every day, 2.5bn people use one or more of its hundreds of household brands. That’s one in three people on our planet. And at Thursday’s closing price of 3,917.5p, Unilever is valued at £100.4bn, making it a FTSE 100 giant. But why would I buy this stock, given the City saying that says ‘dinosaurs don’t gallop’? Because Unilever has produced superior returns over many decades. Also, it hasn’t cut its yearly dividend for 39 years. Right now, Unilever shares trade on 22.8 times earnings and an earnings yield of 4.4%. Though this stock’s earnings are highly rated, so is my opinion of the underlying business. Recently, Unilever’s dividend yield has climbed to 3.8% a year, nearing the FTSE 100’s 4%. With this stock falling more than £6 over one year, it’s the first of my cheap shares to own for 2022-32. However, Unilever’s sales growth has slowed in recent years, so the group is unlikely to expand as rapidly as it once did.
Cheap share: Legal & General
Legal & General (LSE: LGEN) is another great British business that I really admire. This venerable firm has been around since 1836, so it’s in its 186th year. L&G is a market leader in providing UK life assurance, savings, and investments. It manages over £1trn of wealth for more than 10m customers. Yet L&G’s shares are up only 8.6% over the past 12 months, bang in line with the FTSE 100. At Thursday’s closing price of 298.6p, L&G is valued at over £17.8bn. Currently, shares in this British success story trade on under 7.9 times earnings, for a bumper earnings yield of 12.7%. In addition, the stock offers a dividend yield of almost 6% a year (1.5 times the FTSE 100’s yield). But L&G’s next 10 years will depend on global asset returns, which might well disappoint. Even so, this is my second cheap share I’d own for a decade.
Dividend share: British American Tobacco
British American Tobacco (LSE: BATS) is the third of three cheap shares I’d buy today to hold for 10 years. However, BAT is hardly an ethical stock to own as its tobacco products are addictive and harmful. Yet around one in five adults worldwide smokes tobacco, which generates huge earnings and cash flows for BAT. On Thursday, this share closed at 2,809.5p, valuing the tobacco titan at almost £64.5bn — another Footsie mega-cap stock. The shares trade on a modest price-to-earnings ratio of 10.4 and an earnings yield of 9.6%. In addition, it offers a dividend yield of nearly 7.7% a year, nearly double the FTSE 100’s yield. But cigarette smoking is declining, making BAT’s future uncertain. Also, the group carries around £40.5bn of net debt on its balance sheet. Even so, I’d buy this stock for its potential dividend payouts over the next decade.
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Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended British American Tobacco and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.
