From 6 April we get another ISA allowance of 15,240, and thats a tax-free investment opportunity worth grabbing.
Leading with quality
Im looking for firms that can pay a reliable and growing stream of dividends in the years to come. If the company has a good quality business with strong positive cash flow, capital growth should follow. Expanding dividend payments and a rising share price is a double win that should drive pleasing total returns.
Once Ive identified a quality firm, it goes on my watch list waiting for a sensible entry point, perhaps during a period of market weakness, or when some temporary issue knocks the firms share price.
Todays focus is on ARM Holdings (LSE: ARM), Unilever (LSE: ULVR), Shire (LSE: SHP) and Whitbread (LSE: WTB).
Defensive qualities
These firms attract because of their defensive qualities. ARM occupies a strong position in consumer electronics by designing microchips for devices such as the iPhone. Many original equipment manufacturers use ARM intellectual property and itslicensing arrangements keep cash flowing. Meanwhile, Unilevers strong consumer brands have repeat-purchase appeal and itscash flow is robust because of that.
Steady demand keeps Shire grinding forward, and its pharmaceutical offerings share similar consumable qualities as those of Unilever. With Whitbread, perhaps the most cyclical of the four, itsstrength is in brands such as Premier Inn, Costa coffee, Beefeater, Brewers Fayre, Table Table and Taybarns. The jewel in Whitbreads crown is fast-growing Costa Coffee with the cash-generating repeat-purchase credentials Im so fond of.
Outlooks
In February, Arms Chief Executive sounded upbeat, saying: Demand for our technology is increasing, and during the quarter we signed multiple licences for the next generation of high-performance and secure ARM processors. However, there was a note of caution with the firm speculating that economic uncertainty could influence consumer and enterprise spending, potentially impacting semiconductor revenues and industry confidence. If that happens, any share price weakness could shape up as an opportunity to buy into the longer-term growth story here at a discount.
After a good 2015, Unilevers chief executive said in January: We are preparing ourselves for tougher market conditions and high volatility in 2016, as world events in recent weeks have highlighted. Therefore, it is vital that we drive agility and cost discipline across our business.
My guess is that Unilever will plough through any challenges, grinding themout, and moving its business forward as always. Again, any share price weakness could present investors with a decent buying opportunity.
In February, Shires chief executive sounded optimistic, saying:Our continued focus on innovation has resulted in Shire entering 2016 with the most robust pipeline in its history.
And Whitbread comes across as untroubled by the macroeconomic outlook. Itstop executive said last week:In the year ahead we will continue to invest in improving our customer propositions, our digital and IT capabilities and in our winning teams to ensure we maintain our market leading positions. This will deliver long-term profitable growth and sustainable returns for our shareholders.
All four of these firms operate good quality, cash-generating and enduring businesses, which meanstheir valuations arent cheap. However, buying on dips, down days and during times of general market malaise can be one way of building up a position in the longer-term growth story for each. Thats why theyre candidates for my ISA watch list.
Kevin Godbold owns shares in ARM Holdings. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended ARM Holdings. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
