The state pension age is now 66 for men and women, but from 2026 it will start rising to 67. Then it will rise again to 68, possibly from as early as 2037. It could ultimately climb past 70, to keep it affordable. I like my job but I’m not sure I want to work that long. Building a balanced portfolio of UK shares should mean I don’t have to.

I’ll decide when I retire, thank you

Anybody who believes the state will provide a decent standard of living in retirement is sadly deluded. It’s not going to happen. The UK already spends more than £100bn a year on the state pension, that’s an incredible 12% of total public spending and this proportion will rise as the population ages. Chancellor Rishi Sunak has already scrapped the triple lock once, and he is likely to do it again, in my view. So this is where UK shares come into it.

I’m self-employed, so it’s up to me to build retirement savings in my name. Nobody else is going to do it for me, sadly. I’m starting by building a balanced portfolio covering major markets such as the US and Europe, and sectors such as smaller companies. I don’t know enough about these markets to buy individual stocks, so I rely on low-cost exchange-traded funds (ETFs) and investment trusts to do the job for me. I do know a bit about UK shares, though.

There are three reason why I buy individual UK shares instead of funds.

• They give me the opportunity to generate outperformance and beat the market.
• Direct equities are more exciting because they can move rapidly (in either direction), and that keeps my interest levels high.
• It’s challenging (in a good way)! I like examining UK shares and checking out their potential, then seeing what happens to my stock picks (and how good/bad my judgement is).

Here’s why I’m buying UK shares

Right now, I can see plenty of opportunities out there. I suspect we are on the cusp of a commodity boom, because of that awful war in Ukraine. Rio Tinto tempts me. So does Anglo-American. I feel the financials sector is ready for a comeback, and rising base rates should allow the likes of Barclays and Lloyds Banking Group to widen their net interest margins and boost profits.

UK shares pay some of the most generous dividends in the world. Just look at Vodafone, GlaxoSmithKline, Johnson Matthey, and BAE Systems to name just a few. I will reinvest my shareholder payouts for growth today, and draw them as income when I finally retire. That may be when I’m 65, it may be later. The important thing is that the decision is down to me.

The post I still plan to retire at 65 and I’m banking on UK shares to get me there appeared first on The Twelfth Magpie.

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Harvey Jones doesn't hold any of the shares mentioned in this article. The Motley Fool UK has recommended Barclays, GlaxoSmithKline, Lloyds Banking Group, and Vodafone. 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.

FTSE 100 laggard

You can understand why BT’s management might be worried. Shares recently hit an 11-year low following their decision in May to suspend dividends. The idea is that this will provide some protection from the impact of Covid-19 and help to accelerate its push to install full-fibre broadband in UK homes.

On paper, the cut made sense. In reality, the dividend has been one of the few things preventing investors from jettisoning the stock from their portfolios. With many having done so now, BT’s market-cap is currently a little over £10bn. That’s similar to pest control firm Rentokil Initial and copper miner Antofagasta. Five years ago, it was worth four times as much. 

What price BT?

Last week’s developments have sparked a frenzy of speculation over what price the company might fetch if (and that’s a sizeable ‘if’) a suitor comes knocking. BT has asked bankers Goldman Sachs to factor in a £15bn bid — a significant increase on the current valuation.

If a bid from private equity firms or a competitor is actually forthcoming, there’s a chance those investors buying now could make good money. This probability increases in the event of multiple offers. The acquisition of Sky in 2018 proved that.  

Notwithstanding, I wouldn’t rush to buy this or any stock purely on its takeover potential. Market history is littered with bid rumours that never materialised. In the meantime, the company still has a truckload of debt on its books and a big pension deficit to plug.

BT is lowly-priced but justifiably so. I think FTSE 100 peer Johnson Matthey (LSE: JMAT) could be a better buy. 

Green shoots 

Like BT, JM’s share price performance over the last few years has been far from positive. Shares are now valued 35% lower than they were in June 2018, giving a P/E of 16 times earnings. This reduces to less than 13 times earnings in FY2022, assuming analyst estimates are correct. 

For those unfamiliar with the company, Johnson Matthey supplies catalysts and catalyst systems to reduce emissions. It also offers products that recycle scarce resources using less energy and develops active pharmaceutical ingredients for life-changing drugs.

By far the most important aspect of the company for me however, is its interest in battery materials and hydrogen-related technology. In addition to being solid growth opportunities, these green credentials are likely to attract younger, environmentally-conscious investors to the stock.

For now, however, things aren’t great. Last month’s AGM update was a pretty gloomy affair with the company stating that group sales were “materially” down due to lower consumer demand in its ‘Clean Air’ segment. Although sales are now recovering, gauging demand from customers was still proving tricky.

That said, JM’s balance sheet looks in better shape than BT’s. A wide range of clients from multiple industries gives the company some earnings diversification and it still pays a dividend (albeit reduced).

Forced to select the best value play from this FTSE 100 pair, my money would definitely be on Johnson Matthey.

The post The BT share price may be tempting but I’d buy this cheap FTSE 100 stock instead appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

UK electric vehicle shares

In the UK, the biggest is Johnson Matthey (LSE: JMAT). The company’s new markets division specialises in providing battery materials and fuel cell technologies to the transport sector. Its battery materials are designed for the electric batteries that power electric and hybrid vehicles. They make the batteries more powerful and improve their range.

Johnson Matthey’s fuel cell technologies are aimed at another interesting automotive trend, hydrogen-powered vehicles. Compared to pure electric batteries, hydrogen’s applications are less commercially developed, so its mass adoption is further in the future. But its benefits are tangible. So it’s fully expected to be rolled out at scale eventually.

Currently, the new markets division makes up only 9% of total sales. The bulk of the company’s sales come from producing catalysts for petrol, diesel and hybrid vehicles. Its catalysts improve vehicle emissions, so look set to benefit from tighter regulations. They also provide a reliable flow of revenues. While petrol and diesel vehicles may be on their way out, hybrid vehicles will play an increasingly important role in the decades to come. Johnson Matthey is also well exposed to the world’s largest vehicle market, China, responsible for 15% of company sales.

The new markets division isn’t actually profitable yet. Trading at 16 times last year’s earnings, the company’s share price assumes smooth and profitable growth for the new division. But even without an electric vehicle revolution, I think the backbone of the company is solid. It’s a market leader in its clean air business. What’s more, it has a strong balance sheet, a flexible cost base, and a decent dividend.

Another option

Another electric vehicle share is TI Fluid Systems (LSE: TIFS). The company manufactures thermal management and fuel tank systems for petrol, diesel, hybrid and electric vehicles. It’s a market leader in its main markets, and has existing relationships with all of the major vehicle manufacturers.

Hybrid and electric vehicles require more thermal management and fluid handling systems, compared with petrols and diesels. This provides TI with more products to sell per vehicle, meaning that it can make more money per vehicle and more money per automaker. Again, like Johnson Matthey, the company is well exposed to China and Asia.

Bloomberg has predicted that there could be 60m electric vehicle sales a year by 2040. The Chinese government has targeted 7m sales a year by 2025. Considering that only 2m were sold worldwide in 2018, this remains a big jump. Even if these targets are missed, there will undoubtedly be a huge increase in electric vehicles over the next few decades. Both of these companies should benefit.

But for me there’s only one winner. TI Fluid Systems is almost a pure play on this electrical revolution and looks like it has more to gain. More than 30% of Johnson Matthey’s sales come from outside of the automotive sector, where margins are lower and the story isn’t as favourable. TI is also much better value, with a P/E (price to earnings) of just seven. That’s why it’s the electric vehicle share I’d buy.

The post 2 electric vehicle shares I think could race upwards appeared first on The Twelfth Magpie.

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Thomas has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

In a shock announcement at the end of August, the company said it was suspending its shares following a review of the accounts. Management believes this ongoing review will lead to a substantial readjustment in reported earnings before interest and tax, according to the company’s press release on the matter.

As a result, management also warned it will be reviewing Eddie Stobart’s dividend policy. Immediately following the announcement, the shares were suspended from trading, and have remained so.

However, today, the story took another turn. Responding to media speculation over the weekend, the company announced it had received a “preliminary expression of interest” from the private equity group DBAY Advisors Limited regarding a possible issue for the business. As of yet, there’s no certainty an offer will be made, but DBAY now has until 5pm on 7 October to make a final decision.

If it does decide to acquire Eddie Stobart, this could be a boon for shareholders. This time last year, shares in the logistics business were changing hands around 123p, 76% above current levels. I think it’s highly likely an offer, if it does emerge, will be substantially above the current share price.

An FTSE 100 dividend champion

If Eddie Stobart is taken off the market, an excellent replacement in your is portfolio could be Johnson Matthey (LSE: JMAT). I think this is one of the best in the FTSE 100 for a couple of reasons.

First of all, the business is a leader in the speciality chemicals business. This is a highly regulated and niche company, where reputation counts for everything. Johnson has been in business since 1891, giving it a substantial competitive advantage over smaller, younger competitors.

Secondly, management has been pursuing a conservative dividend policy. For example, the company’s current dividend per share (89p) is covered 2.7 times by earnings per share, and it’s been that way for roughly the past 10 years. The dividend has grown at a compound annual rate of around 5.5% over this time, roughly in line with earnings growth. Net gearing — a gauge of balance sheet strength — was just 33% at the end of its fiscal 2019. So it appears the firm has a moderate level of borrowing and a strong balance sheet.

These numbers tell me that while Johnson Matthey’s current dividend yield of 2.9% might not be the highest around, it’s exceptionally safe. Earnings would have to fall by more than 50% for the dividend to come under pressure. Considering its reputation and competitive advantage, I think that’s unlikely.

Still, even if it earnings do fall 50%, Johnson Matthey has plenty of financial headroom on its balance sheet to borrow money and make up for any short term cash shortfalls. That’s why I think this could be one of the best dividend stocks in the FTSE 100.

The post Is this the best dividend stock in the FTSE 100? appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

This supply of cash can be reinvested to boost future returns, or can be withdrawn to provide a second income.

Here, I’m going to look at three FTSE 100 stocks I’d be happy to add to a long-term income portfolio.

Too cheap to ignore?

FTSE 100 insurance group Prudential (LSE: PRU) is a household name in the UK, but now makes much of its money in Asia and the USA. In 2018, the group generated an operating profit of £2,164m in Asia, £1,919m in the USA and £1,634m in the UK and Europe.

These numbers highlight the group’s geographic diversity and its direct exposure to Asia’s expanding middle class.

This year, the company plans to spin out its asset management business, M&G Prudential, into a separately-listed company. Some investors believe Prudential shares will attract a higher valuation after this, as the business will be more heavily focused on Asian growth markets.

At current levels, PRU stock certainly looks decent value to me. Trading on 10 times forecast earnings with a 3.3% dividend yield, this is a business I’d be happy to hold forever.

I’d back family management

It’s rare to find a family-owned and managed business in the FTSE 100. One exception to this rule is Associated British Foods (LSE: ABF), which owns brands including Twinings, Ovaltine, Silver Spoon, Kingsmill and Patak’s. The group also owns budget fashion retailer Primark.

ABF remains under the control of the founding Weston family, and is managed by George Weston. Like most successful family businesses, the firm is run conservatively and with a long-term view.

The balance sheet boasted net cash of £386m at the start of March and the dividend has not been cut for at least 22 years. Although the shareholder payout has doubled since 2009, last year’s dividend was still covered more than 2.5 times by earnings.

Such a safe package doesn’t come cheap. Associated British Food’s shares trade on 18 times 2019 forecast earnings and offer a dividend yield of just 1.9%. But if you want a stock you can rely on for the next 20 years, I think this could be a great choice.

I’d buy this instead of Tesla

You might think a company such as Tesla is the best way to play the growing shift towards electric cars. I’m not so sure. At this stage, I think it’s hard to be sure who the long-term winners will be.

I’d rather back a company with a proven track record of providing technology that’s used by many major car manufacturers. My pick on the UK market is Johnson Matthey (LSE: JMAT), a FTSE 100 chemicals group that’s best-known for making catalytic converters.

This 202-year-old firm has evolved before and is now working hard to develop a new generation of battery technology. In my view, this could be a great way to play the long-term shift towards electric transport.

Earnings are expected to rise by about 11% this year. Broker forecasts put the shares on a forecast price/earnings ratio of 13, with a dividend yield of 2.9%. I see the shares as a buy at this level.

The post Building a second income? 3 FTSE 100 dividend stocks I’d hold for life appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Tesla. The Motley Fool UK has recommended Associated British Foods and Prudential. 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.

Cleaning up

FTSE 100 global science and chemicals company Johnson Matthey (LSE: JMAT) prefaced today’s preliminaries for the year to 31 March with CEO Robert MacLeod hailing “another good year with strong sales and operating profit growth.” But markets failed to share his enthusiasm, with the share price down more than 5% at the time of writing.

You ungrateful lot. What do you want? As ever, it comes down to expectations. JMAT posted a 5% rise in revenues to £10.75bn, coupled with a whopping 53% rise in profit before tax to £488m. Earnings per share rose 39% to 215.2p, while the dividend was hiked 7% to 85.5p.

Steady as she goes

I suspect investors were underwhelmed by growth forecasts, which look modest in 2019/20 and weighted to the first half. McLeod expects 2019/20 operating performance growth to be within its “medium term guidance of mid to high single digit growth”. Or maybe investors are struggling to get worked up given that the Johnson Matthey share price has gone nowhere fast since 2014.

Today, the business posted a small dip in return on invested capital (ROIC), from 17% to 16.4%, mainly due to higher precious metal working capital. However, its balance sheet looks strong with net debt of £866m, giving net debt to EBITDA of 1.3 times.

Electric outlook

Johnson Matthey specialises in sustainable technologies and its clean air division, whose catalytic converters appear in a third of the world’s cars, has been boosted by tighter regulation in Europe and China. It should also benefit from the expanding market for electric vehicles.

However, new tech can be a double-edged sword, as rising electric car sales could boost demand for its higher energy density battery materials while simultaneously hitting catalytic converter sales.

The £5.8bn group trades at just 12.1 times forward earnings. Its forecast yield is just 2.8%, but we have seen today that management policy is progressive, and cover healthy at 2.7. The dividend hasn’t been cut for 26 years and my fellow contributor Roland Head says this is a stock he would buy and hold forever.

Finding its way

Compass Group (LSE: CPG) is another FTSE 100 stock that’s easy to overlook, even though its share price has grown 76% over the last five years against just 12% across the index as a whole.

The food, hospitality and support services recently posted a 6.6% rise in underlying revenues to £12.5bn. Operating profits were squeezed by increased cost pressures in Europe, but still climbed 5.8% to £951m.

Nicholas Hyett at Hargreaves Lansdown recently described Compass as a “brilliantly boring business,” while our very own Peter Stephens says it offers resilience and dependable income growth, and anticipates impressive long-term total returns.

Compass has a hefty market-cap of £28.5bn. But, unfortunately, it isn’t cheap at the moment, trading at 21 times forecast earnings. Some might see that as reassuringly expensive.

The yield is also low at just 2% with cover of 2.1 although, again, management is generous and as it has hiked it every year since 2001. Earlier this month, it lifted the interim dividend 6.5% to 13.1p per share. Perhaps it’s a little too boring though.

The post Are these 2 FTSE 100 dividend growth stocks more exciting than they look? appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Compass Group. 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.

Today I want to explain how I think you can improve your stock picking success rate by focusing on a certain type of company.

Boring or brilliant?

We can’t predict the future, but we can learn from the past. If a company has traded profitably over long periods and through wars and recessions, there’s a good chance it will continue to do so. If it also pays regular dividends and looks cheap, then I start to get interested.

The first stock I want to look at today is FTSE 100 chemicals group Johnson Matthey (LSE: JMAT). This company’s history stretches back 201 years to 1817, when it traded as an assayer, testing the purity of precious metals.

Today its largest division is Clean Air, which makes catalytic converters and other emissions control systems for cars, buses, and trucks. This business accounts for around two-thirds of sales and profits.

Why I’d like to own this stock

Johnson Matthey’s dividend has not been cut since at least 1992 — the earliest I could find records. That’s 26 years of unbroken income, during which the annual payout has risen from 10.3p per share to 80p per share.

If you’d bought the shares back then, the current dividend would give you an annual yield of about 14% on your original investment. The value of your shares would also have risen by nearly 400%.

As we head into the electric vehicle age, Johnson Matthey is preparing to reinvent itself as a major battery manufacturer. Given the firm’s track record, I think there’s a good chance it will succeed.

In the meantime, the shares look good value to me on 12 times 2018/19 forecast earnings, with a 3.1% dividend yield. This is a stock I’d buy and hold forever.

Another long-term winner?

My next pick is cardboard packaging group DS Smith (LSE: SMDS). This firm was founded in the 1940s but now trades in the FTSE 100, suggesting a powerful growth story.

DS Smith counts firms including Amazon, Proctor & Gamble and Danone among its customers. Despite their strong bargaining power, it was able to recover rising paper costs and lift its adjusted operating margin from 8.7% to 9.9% during the first half of this year.

The group’s sales rose by 15% to £3,073m during the six-month period, while adjusted operating profit was 32% higher, at £304m. Return on average capital employed, a measure of profitability, was unchanged at 13.9%. I see this as a strong figure for a business of this kind.

Acquisitions have helped to boost growth and create economies of scale. But the firm isn’t expanding at any cost. Today management announced plans to sell the group’s plastics business. In my view this makes sense, given the firm’s focus on paper and cardboard packaging and growing anti-plastic consumer sentiment.

Too cheap to ignore?

The DS Smith share price has fallen by more than 35% since the summer. I think the sell-off has gone too far. At about 320p, the stock trades on 8.9 times forecast earnings and offers a 4.9% dividend yield. I’ve added the shares to my buy list.

The post Got £3k to invest? 2 FTSE 100 dividend stocks I’d buy for my retirement appeared first on The Twelfth Magpie.

More reading

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• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Roland Head has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon. 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.

Today, I’m looking at three that I don’t yet own, but I am considering buying after the recent stock market rout.

Hargreaves Lansdown

Hargreaves Lansdown (LSE: HL) is generally considered more of a growth stock than a dividend one as it trades on a high valuation. Yet after the recent market sell-off, the prospective yields for this financial year and next are now 2.5% and 2.9% respectively, which look attractive when you consider that the group has lifted its payout by over 500% in the last decade. 

I’m a huge fan of Hargreaves’ investment platform, simply because it’s so easy to use. Whether you want to buy a stock or a fund, Hargreaves makes the process very straightforward. It’s no surprise the company has such a high market share. I also like the long-term story – Britons desperately need to save more for retirement, and as a market leader in the investing space, HL looks well placed to capitalise.

While the stock has fallen from £22.60 to £18 in the last two weeks, it’s still a little too expensive for my liking, as the forward P/E is 31.3. I’m watching this one with interest – if it falls a little further, I may just pull the trigger and buy it.

Reckitt Benckiser

Next, I’m also monitoring consumer goods champion Reckitt Benckiser (LSE: RB), which owns a large portfolio of well-known health and hygiene brands that consumers buy in good times and in recessions. Its shares have lost 10% since early October.

I view Reckitt as a high-quality company that has a compelling long-term growth story in the form of emerging markets exposure. I believe it looks well placed to benefit from rising consumer spending and population growth across those emerging markets, particularly after the recent acquisition of baby-milk specialist Mead Johnson.

Reckitt currently trades on a forward P/E of 19.5 and offers prospective yields of 2.6% and 2.8% for this year and next. Ideally, I’d like to be picking up a little more value here as growth is a bit slower, so I’m going to hold off on buying for now. However, if the stock keeps falling, my interest will definitely increase.

Johnson Matthey

Lastly, £6bn market cap Johnson Matthey (LSE: JM) has also attracted my interest after the recent market volatility. Very much an under-the-radar stock, it researches, develops and delivers technologies to help build a cleaner, healthier world and so should be well placed to benefit as society becomes more focused on environmental protection and sustainability.

With a prospective yield of 2.8%, JM is certainly not the highest-yielding stock in the FTSE 100. That said, there’s a lot to like about the company from a dividend investing perspective as it has an outstanding dividend growth track record and also has very strong dividend coverage. Indeed, the company has now notched up 20 consecutive annual dividend increases, and with forecast earnings and dividends this year of 227p per share and 85.9p per share respectively, dividend coverage looks very robust at 2.6 times.

Trading on a forward P/E of 13.6, the investment case here is beginning to look interesting.

The post 3 FTSE 100 dividend stocks I’m considering buying after the latest market crash appeared first on The Twelfth Magpie.

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. 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.

To get an idea of how much money you’ll need to retire on, you can use the 4% rule. This is a very widely-used rule of thumb which says that if you withdraw 4% of the initial value of your retirement fund each year, it should last you at least 30 years.

The State Pension is currently £164.35 per week, or £8,546.20 per year. Based on the 4% rule, my sums show that a share portfolio worth £213,655 would be needed to generate a matching income.

What about inflation?

This calculation shows what you’d need to match the State Pension if you were retiring tomorrow. It doesn’t take into account inflation.

Under the government’s so-called triple-lock rule, the State Pension will increase by at least 2.5% each year. Here’s how the annual amounts will change over different periods…

A hands-off portfolio

I enjoy investing. But I don’t want to spend all of my retirement glued to a computer screen analysing stocks. That’s why I’m aiming to build a long-term portfolio of dividend stocks that I can hold unchanged for many years.

In the remainder of this piece I’m going to take a look at three companies that have been in business at least 100 years and have long histories of dividend growth.

Don’t bet against oil

It’s fashionable to think that the world will be driving around in electric cars in 20 years. But even if many of us are, lorries, shipping and aviation all seem likely to remain dependent on fossil fuels. And that’s without considering the demand from gas-powered power stations.

With good management, I believe Royal Dutch Shell should be able to adapt to a lower carbon world.

It’s also worth remembering that this company hasn’t cut its dividend since the Second World War. This impressive track record makes today’s starting yield of 5.3% even more tempting to me.

Investing in batteries

If you’re really not keen on oil and gas, one alternative pick from the FTSE 100 might be chemicals group Johnson Matthey. At present, automotive catalytic converters are one of the group’s key products. But the firm is investing heavily in battery technology, with an eye on growing demand from the transport sector.

Johnson Matthey’s 200-year history shows that this business has reinvented itself several times before. I reckon it will continue to do so. This is a stock I’d be happy to buy and hold forever.

Profit from pensions

My final pick is insurance and asset management firm Legal & General Group. In recent years this company has adapted to the change in pension regulations by becoming one of the biggest players in the ‘buy-in’ bulk annuity market. This means it sells insurance to cover the liabilities from corporate pension schemes.

My view is that the group’s specialist skills and economies of scale mean this should be a profitable long-term strategy. The shares look cheap to me on 9 times forward earnings, with a 6.3% dividend yield.

The post Why you need a £213,655 stock portfolio to double the State Pension with shares appeared first on The Twelfth Magpie.

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• The £15bn defence splurge that could send UK shares soaring in July
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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Strong growth outlook

Underlying sales of £3.85bn were 7% ahead of last year at constant exchange rates. At the bottom line, underlying earnings per share (EPS) came in at 208.4p, a tad lower than last year’s 209.1p but above a Reuters consensus forecast of 207.99p. The board said it was increasing the dividend by 7% to 80p (versus a forecast 78.7p), “reflecting our confidence in the prospects of Johnson Matthey.” These prospects were reiterated in medium-term EPS guidance of a mid-to-high single-digit compound annual growth rate and an expansion in return on invested capital to 20% (from a current 16.4%).

The group’s largest division, Clean Air (operating profit £349m, 61% of group), has a strong growth driver from tightening environmental legislation across the world. Efficient Natural Resources (£158m, 28%) has market-leading technology focused on higher-growth segments. Health (£44m, 8%) is set to deliver breakout growth with the commercialisation of a pipeline of new generic products, expected to deliver operating profit of £100m by 2025. Finally, in New Markets (£17m, 3%), there’s huge scope, as the company commercialises a next-generation battery material that enables the rapid development of pure battery electric vehicles.

At a share price of 3,425p, Johnson Matthey’s trailing price-to-earnings (P/E) ratio is 16.4 and the running dividend yield is 2.3%. The shares are now 7% higher than when I wrote about the company at the half-year stage. However, given the solid outlook for earnings and dividend rises and potential for explosive longer-term growth, I view the valuation as still attractive and continue to rate the stock a ‘buy’.

Favoured by demographics

Another FTSE 100 company that enjoys strong external drivers for long-term growth — in this case demographics — is medical technology giant Smith & Nephew (LSE: SN). The group is well balanced across three divisions: Sports Medicine, Trauma & Other ($1.9bn revenue last year, 40% of group), Reconstruction — knee and hip implants ($1.6bn, 33%), and Advanced Wound Management ($1.3bn, 27%).

EPS last year came in at $0.945, 14% ahead of the previous year, and the company increased its dividend by the same percentage to $0.35. At a share price of 1,375p and current exchange rates, the trailing P/E is 19.4 and the running dividend yield is 1.9%.

Long-term growth still in prospect

Earlier this month, it reported a weaker than expected Q1 and lowered its guidance on full-year revenue growth to between 2% and 3% from its previous 3% to 4%. I wouldn’t go as far as my Foolish colleague Royston Wild in labelling this as chilling news, but the performance in 2018 is certainly set to be muted.

Nevertheless, I view the shares as still very buyable, due to those long-term drivers for growth I mentioned earlier. Finally, I don’t see a recent change of chief executive after seven years as a cause for concern. Indeed, the incoming CEO is an industry veteran, who, in the words of Smith & Nephew’s chairman, “has demonstrated that he can energise businesses to deliver better performance and greater value to shareholders.”

The post 2 FTSE 100 stocks I’d buy in June appeared first on The Twelfth Magpie.

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• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.