As I write, there are just 10 trading days left before the 2019 ISA deadline. If you havent used up your annual 20k allowance, then theres still a short time left.
One of my goals for my Stocks and Shares ISA is to gradually build up a collection of dividend shares I wont ever need to sell. In this article, Im going to look at two companies Id be happy to include in my forever portfolio.
The stock Warren Buffett couldnt buy
My first choice is consumer goods group Unilever (LSE: ULVR). This is a classic Warren Buffett type of stock strong brand names, high profit margins and a track record of strong cash generation and stable returns.
You may remember that the US billionaire tried to buy Unilever back in early 2017. He wanted to combine it with US rival Kraft Heinz, but met with a hostile reception. Both Unilevers management and its investors agreed that the group was likely to deliver more attractive returns as an independent business.
Buffetts problem is he has to invest billions in order to move the needle. Thats not an issue for most of us. This is why I believe it makes sense to put money into a stock that Buffett wanted to buy, but couldnt.
Things are changing
Although Buffett and his partners 3G Capital didnt manage to buy Unilever, this surprise bid approach jolted the Anglo-Dutch groups management into action. Theyve since made many of the changes that 3G was planning to improve shareholder returns.
This years results showed the effects of these changes. Underlying operating profit margin rose by 0.9% to 18.4%, while earnings per share rose 5.2%. These increases may seem modest, but for a business that sells more than 50bn of goods each year, I think theyre pretty impressive.
This strong performance has left Unilever stock trading on 20 times 2019 forecast earnings, with a 3.3% dividend yield. I believe this could be a fair price for such a profitable business. Unilevers dividend has risen by an average of 8% per year since 2013. Forecasts suggest this pace will be maintained. I rate the shares as a buy.
This 6.3% yield could help you retire
Unilevers 3.3% dividend yield is below the FTSE 100 average of 4.4%. I think thats acceptable for a dividend thats growing much faster than inflation. But Im also keen on owning some shares with above-average yields, as long as I think theyre sustainable.
One high yield stock I would like to own is Legal & General Group (LSE: LGEN). The savings and insurance group has a track record of steady growth, impressive profit margins and strong cash generation. Shareholders have been rewarded with a dividend thats doubled since 2013.
This income growth hasnt come at the expense of safety. Analysts expect Legal & Generals 2019 dividend to be covered 1.8 times by forecast earnings. I see that as a good level of cover for a business of this kind.
Shareholders are expected to receive another 7% pay rise this year. With the shares trading on 8.6 times forecast earnings and offering a 6.3% yield, Id be a buyer.
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