I am not a trader but a long-term investor. So I look for cheap shares in great companies then add them to my portfolio with the intention of holding them for years.
In practice, changing circumstances can mean that sometimes I buy shares for the long term but end up selling them sooner than I originally expected. However, here are a couple of shares I have bought that I currently expect to hold for a decade. I think both are attractively valued right now.
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Dunelm
Will people still live in homes a decade from now? Will they still want to decorate them? The answer to both questions is yes, in my view.
So if a company can tap into this market in a way that sets it apart from competitors, that could turn out to be a lucrative business model. That is why I own shares in homeware retailer Dunelm (LSE: DNLM).
Its unique design and service proposition, along with an efficient UK-focussed operation that offer economies of scale, help to set it apart from many rivals, in my view.
Sales woes
Despite that, the firm trades on a price-to-earnings ratio of 13. In think that makes these cheap shares. Admittedly, there is a risk earnings may fall as consumers tighten their belts in a recession. Sales in the first quarter of Dunelm’s current financial year were 8% lower than a year before.
But the business has been consistently profitable, pays a generous dividend and has a good track record of carefully managing its balance sheet. Net debt at the end of its last financial year was £24m.
Overall, I like Dunelm’s business model and its current share price. Indeed, if I had spare cash to invest today, I would be happy to add more of its shares to my existing holding.
Altria
I also own shares in British American Tobacco. I appreciate the large passive income streams I generate from the company’s dividends.
But, arguably, rival Altria (NYSE: MO) is even more rewarding, which is partly why I also own shares in the US tobacco giant. Its yield is 8.3%, compared to the 6.6% on offer at British American Tobacco.
I see the shares as fairly cheap. The company has a market capitalisation of $81bn and, last year, its operating income was a massive $12bn. That does not reflect costs like interest and taxes, so net income is lower.
But, like British American, Altria is a cash generation machine. Owning rights to the Marlboro brand and distributing it in the US market is a goldmine for the company.
In the past five years, Altria’s dividend has grown at a compound annual rate of nearly 8%. I am keeping it in my portfolio hoping for further dividend increases in future. That could boost its already juicy yield further.
Future prospects
Will Altria’s financial success last? After all, cigarette volumes are declining. The corporation has made costly mistakes in adapting its portfolio for future demand, as shown in the massive writedowns it has taken on the Juul vaping brand.
Long term though, while cigarette volumes are falling I expect them to remain substantial. The product addictiveness also gives Altria pricing power, which can help it to raise prices to try and offset falling volumes.
