A FTSE 100 dividend stock I’d buy and hold forever

Generations of hands on top of each other
Generations of hands on top of each other

Finding stocks you can buy and hold forever isn’t easy. But for me, it’s the holy grail of investing — buying shares that will provide me with attractive returns for decades to come.

Where should you start? My approach is to focus on companies that are already large and well established. This tells me that they’ve dealt with difficult situations before and survived.

A second requirement is that the company pays a dividend. Although some investors are happy to sell shares to generate an income, this approach doesn’t work for me. I also find that regular dividends make it easier to ignore the market’s ups and downs.

My final requirement is that the shares should be attractively valued. Stock market history suggests that one of the best ways to beat the market is to invest in good companies when they’re cheap. Certainly my greatest investing successes have come from buying shares in businesses that are out of favour, but fundamentally sound.

Today’s top FTSE 100 bargain?

For the purposes of this search, I’ve restricted my hunt to the FTSE 100 index of the UK’s largest listed companies. Many of these firms are international in outlook despite their London listings, so I’m not overly concerned about near-term risks like Brexit.

One stock that ticks all the boxes for me is banking group Barclays (LSE: BARC), which has been in business for more than 300 years.

Banks remain unpopular with investors and the Barclays share price has fallen by 25% over the last year. However, I think the case for investing has become much stronger over this period.

While Barclays’ shares have been falling, the bank’s profits, dividend and profitability have improved. Most of the misconduct issues relating to the 2008/09 period have now been settled. New PPI claims end in August this year, after which the bank’s one-off costs should fall.

Priced for disaster

As I write, the bank’s shares are trading at about 153p. But at the end of September, Barclays reported a tangible net asset value of 260p per share.

This 40% discount suggests that the market does not expect the bank’s current level of profitability to be sustainable. So far, there’s no evidence of this. Excluding misconduct charges, its pre-tax profit rose by 23% to £5,267m during the first nine months of 2018.

Underlying earnings are expected to have risen by 37% to 22.3p per share in 2018. For 2019, analysts are forecasting an increase of 5% to 23.4p per share.

These forecasts put Barclays’ shares on a 2018 price/earnings (P/E) ratio of 6.7, falling to a 2019 P/E of 6.4. Although there are some risks ahead, I believe the shares are too cheap, given the improving performance.

A rising income

Chief executive Jes Staley has been unable to repair the dividend in recent years, as cash generated by the bank has been needed to strengthen its balance sheet and fund misconduct charges.

But this grim period is now coming to an end. Barclays’ dividend is expected to rise to 6.5p for 2018 and by a further 24% to 8.1p per share in 2019. These figures give it a forecast yield of 4.3%, rising to 5.4% this year.

We don’t know what the future holds, but Barclays has already survived many wars, recessions and regulatory changes. I rate the shares as a top buy for long-term investors.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays. 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 us better investors.