Patience is one of the most underestimated virtues among investors. Too many dive in hoping to make a quick buck, failing to realise that the true rewards of investing in stocks and shares lie in the longer run.
Buying strong, established globally exposed businesses with excellent share price growth and dividend progression won’t make you rich overnight, but should make you far wealthier in the longer run. Many investors will be holding Aviva (LSE: AV), GlaxoSmithKline (LSE: GSK) and Unilever (LSE: ULVR) for exactly these reasons, but — given recent setbacks — has their patience been stretched too far?
Aviva Fever
Insurance giant Aviva has been embarrassed by insurance rivals Legal & General and Prudential over the last five years. It returned a mere 13% in that time, against a spectacular 145% for L&G and 125% from the Pru.
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Many investors, including me, bought Aviva because they hoped it would play a lucrative game of catch-up. We swallowed our disappointment when it slashed its dividend by a quarter in March 2013 to fund its turnaround strategy and hung on, waiting for management to build a leaner, meaner business.
Half-year results show Aviva is still a work in progress. The share price turnaround is taking longer than we all hoped. Its relatively high exposure to Europe has held it back, even if its prime UK market has done better. Aviva’s lack of Asia exposure looks less of a disadvantage given troubled emerging markets. At today’s valuation of less than 10 times earnings, it is clear that some investors have lost patience. The dividend is being rebuilt but at today’s 3.86% yield, investors’ patience may be better rewarded elsewhere. I’m giving it one more go, though.
Glaxo Fails To Go
For years, GlaxoSmithKline seemed the simplest and security way of making a long-term killing on the stock markets: buy its shares, reinvest the juicy dividends for growth, and let time do the rest.
Then things started to go wrong, starting with the Chinese bribery scandal, followed by patent expiries and late-stage failures and falling sales. Glaxo is now trading at the same price it was five years ago. Over the last six months, it is down 20%, which smarts. It is no longer a safe harbour in stock market storms.
New buyers may be tempted by its relatively lowly valuation of 13.52 times earnings. Loyal investors can comfort themselves with the whacking yield, now 6.18%, and pray it doesn’t get cut. There is hope, as Glaxo restructures and integrates Novartis, new products promise £6bn of annual sales by 2020, and management stands by the dividend. Glaxo should still reward those who bide their time.
Unilever Moves The World
Household goods giant Unilever is another classic FTSE 100 buy-and-hold stock. It was always expensive as a result, typically trading at 20 times earnings or more, and yielding little more than 2%. After a year of underperformance those numbers have changed dramatically. Finally, investors can buy it at a modestly priced 15.8 times earnings and pocket an almost decent 3.46% yield.
Sales, earnings and margins were still up in the first half, despite headwinds in China and emerging markets. Chief executive Paul Polman’s pledge to deliver “consistent, competitive, profitable and responsible growth” looks eminently achievable, given its unbeatable portfolio of everyday branded products. Like Glaxo, Unilever now appears to offer a rare buying opportunity. But only if you’re prepared to be patient.
