With the market moving higher, I tend to focus (even more) on investments that have strong dependable cashflow.
I don’t want to chase high growth stocks for the sake of it and end up burned when the market takes a tumble, or a disappointing report sees the shares inevitably re-rate down to a more reasonable valuation.
Investing in large caps doesn’t mean forsaking growth altogether. Here are two easy to understand businesses where I’d be happy to allocate $10,000 today, each of which has a decent growth outlook.
Wesfarmers Ltd (ASX: WES) – $5,000
The company’s recent report was well received by the market, with most of its business divisions having solid underlying results. With the Coles demerger set to take place later in the year, Wesfarmers will look to allocate that capital to higher return prospects.
It may double-down on its best performing businesses, Bunnings Australia & New Zealand and Kmart, or it may be on the hunt for a new business to add to the portfolio.
Wesfarmers currently trades on a grossed up dividend yield of 6.1%.
Sydney Airport (ASX: SYD) – $5,000
Population growth and passenger numbers have been climbing, with Sydney Airport being a huge beneficiary.
It continues to add more flights to more locations, opening itself up to larger numbers of travellers, while investing to improve the offering and features of the airport.
Strong and growing cashflow has enabled Sydney Airport to increase the distribution by 10.4% per annum over the last 5 years. It currently trades on a forecast yield of 5.2%. This business also has pricing power and other moat-like qualities, similar to Transurban Group (ASX: TCL).
Both of these businesses generate strong amounts of cashflow and have proven themselves as reliable dividend payers. When the market turns, I believe quality companies like this hold up much better than some of the high-flying growth names of today. I think the earnings outlook is good for both businesses and each would make a solid addition to a set-and-forget, ‘bottom-drawer’ style portfolio.
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Motley Fool contributor Dave Gow owns shares of Sydney Airport Holdings Limited, Transurban Group, and Wesfarmers Limited. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited, Transurban Group, and Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.