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I’m looking to populate this year’s Stocks and Shares ISA with UK stocks that offer long-term dividend and share price growth potential. I favour established FTSE 100 blue chips that I hope to hold for years.
To this end I target companies with solid balance sheets, established brands, loyal customers, and a track record of increasing shareholder payouts. If their shares have dipped lately, even better, as it means I can buy them at a discounted price.
Hunting for FTSE 100 bargains
I’ve taken advantage of the big drop in the Diageo (LSE: DGE) share price. The spirits giant issued a shock profit warning in November after a huge sales drop in Latin America and the Caribbean. I snapped them up at a big discount two weeks later. Sadly, they’ve continued to slide. I’m down around 8%.
I probably jumped too soon but I’m happy to sit back and give Diageo time to recover. That’s the advantage of investing with such a lengthy timescale.
The share price is down 23.3% over 12 months and I accept that Latin American sales won’t rebound overnight. Another concern is that Diageo’s net debt has crept up from $17.8bn to $20bn.
However, I think the sell-off has been overdone. First-half net sales fell only 0.6% to $11bn on an organic basis, while free cash flow jumped from $964m to $1.5bn. Management hiked the interim dividend 5% and completed a £500m share buyback. I think Diageo will be back. I may even take advantage of current weakness to buy more.
That is the type of stock I’m looking for today. A good company that’s had a bit of a hiccup.
FTSE 100 software specialist Sage Group has also enjoyed a strong run only to slip lately. The Sage share price is down 13.76% over the last month, although it’s still up 18.1% over the year.
First-half pre-tax profit jumped from £139m to £203m but management downgraded second-half guidance. The Market wasn’t happy but that suits me. I’ve been waiting for my opportunity for ages, and I reckon this is it.
Dividends and growth
I’d like to increase my position in Legal & General Group, whose shares dropped 9.38% over the last month as interest rate cut hopes were pushed back again. The price is down 5.09% over one year but offers an unmissable 9.1% yield. Imagine that rolling up over the years – with share price growth on top.
I’ve had my eye on pest control specialist Rentokil Initial for months too, so was a bit miffed when it jumped 13.3% on Wednesday, as news broke that activist investor Nelson Peltz had taken a significant stake. It’s still down 28.1% over 12 months, so still looks tempting to me.
Like many commodity stocks, Rio Tinto has been hit by the struggling China economy. It’s down 4.73% over one year.
Rio looks great value trading at 9.21 times earnings and yielding 6.59%. I’ll pop this in my Stocks and Shares ISA, too, when I have the cash. Then I’d put my feet up.
