Why I'd buy Unilever plc and BAE Systems plc to fund my retirement

Updated: 
Cruise Ship

Today, I'm looking at two stocks that I consider to be solid long-term holdings. Both companies pay robust dividends and have potential for capital growth over the long term too, in my view.

Unilever

In Unilever(LSE: ULVR), I see a considerable number of attributes that make the stock an ideal long-term holding.

For starters, Unilever owns a fantastic portfolio of over 400 brands, including 13 that generate sales of over EUR1bn per year. According to the company, on any given day, 2.5bn people across the world use products such as Dove and Persil. The company is well-diversified geographically, and has significant exposure to emerging markets, with almost 60% of its sales generated in these regions. With wealth levels rising in many developing economies, demand for its products should remain robust over the long term.

It is striving to become a more competitive and profitable business, and in autumn 2016, began implementing its 'Connected 4 Growth' programme. This programme is designed to make Unilever more agile, less complex and increasingly responsive to fast-changing consumer trends, and management believes this will assist in boosting shareholder value.

The company also has dividend appeal, and has raised its dividend in each of the last five years at a compound annual growth rate (CAGR) of an inflation-beating 7.3%. Dividend coverage in this time has generally been around the 1.5 mark, suggesting that the company could weather a drop in profitability and still afford to pay its dividend.

Unilever's high-quality attributes make the stock a popular investment among institutional and private investors alike. As such, the company rarely trades cheaply, and at present, the forward P/E ratio is 22. However, perhaps one way of thinking about Unilever is to consider Warren Buffett's advice that "it's better to buy a wonderful company at a fair price than a fair company at a wonderful price."

BAE Systems

Another FTSE 100 giant I consider to be an excellent long-term hold is BAE Systems(LSE: BA). With global political uncertainty becoming the new normal in recent years, I think demand for defence - both traditional and cyber - will remain strong, and I believe BAE Systems is well-placed to capitalise.

Its vision is to be the "premier international defence, aerospace and security company" and it aims to achieve this by continuing to win new international orders, improving efficiency and competitiveness, and accelerating the growth of its cyber, intelligence and security business areas. The company generates sales in the US, the UK, Saudi Arabia and Australia.

The stock has dividend appeal, with last year's payout of 21.3p per share equating to a yield of 3.5% at the current share price. While dividend growth hasn't been prolific in recent years, the company has increased its dividend every year for the last decade. Analysts expect dividend growth of 3% this year, and coverage is anticipated to be a healthy 2 times.

One thing to note is BAE's pension deficit, which at almost £6bn, is almost a third of the company's market capitalisation. However, management recently said that "with the expected improvement in the defence budget outlook in a number of our markets, the Group is well placed to continue to generate good returns for shareholders."

After a 10% pull-back in the share price over the last two months, I believe BAE Systems now offers value on a forward looking P/E ratio of 13.9.

I plan to retire earlier than my parents. How about you? 

The Motley Fool recently published a brand new exclusive early retirement report calledThe Foolish Guide to Financial Independence. If retiring early is a goal of yours, I'd highly recommend reading the report.

It's FREE, comes with no obligation and can be downloaded within seconds simply by clicking here.  

Edward Sheldon owns shares in BAE Systems. The Motley Fool UK owns shares of and has recommended Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes