We’d all like to make money from shares without too much effort. In this article I’ll point out two shares I believe investors like us can buy now at good value and hold for the next decade.
First up is National Grid (LSE: NG) the electricity and gas utility company with operations in the UK and the US. For me, this is a very stable business, given the regulated returns the company receives. It makes money by agreeing with regulators the amount it can charge, so it has good earnings visibility and there’s far less chance of a nasty surprise for the company or its investors. This stability, in turn, allows the company to pay out a generous dividend to its investors.
Investing for the long term
For investors with a long-term view, this increased certainty makes the company an attractive investment. Even better is the fact that now is a good time to pick up the shares from a valuation and income perspective because they currently have a P/E ratio of only around 14 – meaning they’re not that expensive. For comparison, another FTSE 100 giant that’s popular with private investors, Unilever, the consumer goods company, has a PE just above 22. That puts into perspective the value of National Grid’s shares. The company also rewards its investors with a high dividend yield of more than 5.5%.
The one big concern for investors, of course, would be the threat of nationalisation under a Jeremy Corbyn government. This can’t be dismissed given the current situation in British politics. However, I continue to hold the shares and believe a combination of the yield and valuation make them a compelling investment.
Plastics are certainly not flavour of the month. As society turns against the use of plastics, especially single-use plastic, companies in the industry have seen their share prices dragged lower. However, like other industries affected by change (think tobacco for example), I expect the big players will find a way to adapt and prosper. This is why I think that even a decade from now, DS Smith (LSE: SMDS), a packaging company operating in more than 37 countries, will have grown significantly and be able to reward investors handsomely. Furthermore, it sold its plastics division recently meaning that potential drag has been removed.
The opportunity for investors
DS Smith is another company offering a potentially very rewarding combination of income and a cheap valuation. The shares can be picked up currently at a P/E of only a little over 10 and offer a yield of just a bit over 4%. The performance of the share price is very similar to that of its slightly larger rival Smurfit Kappa, both having failed to really recover the ground lost at the end of 2018 as the whole market fell. This means that investors can pick up the shares on the cheap (in my opinion), which has the potential to increase returns if the shares bounce back and I think they should.
Why do I think that? The increase in e-commerce means that for the next decade at least, there will be rising demand for the product that packaging companies provide. Therefore, I expect the firm to keep on growing and benefit from being a truly global player in the industry.
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Andy Ross owns shares in National Grid. The Motley Fool UK has recommended DS Smith. 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.
Motley Fool UK 2019