Our market has no shortage of well established, mature companies to choose from. The only problem for stockpickers is, deciding which ones are worth investing in.
Take National Australia Bank Ltd (ASX: NAB) for example, it looks cheap at today’s prices, but looking forward there are still a number of headwinds facing the bank.
Outside the banks, there’s a number of large, reliable businesses which appear to have brighter futures.
Transurban Group (ASX: TCL)
The toll-road king needs little introduction. Transurban is a regulated monopoly and has a growing portfolio of valuable roads. And another is about to be added, with the company raising cash for the WestConnex project in Sydney.
Despite being massively expensive to build, once complete, these toll-roads throw off large amounts of cashflow for a very, very long time. So even though Transurban carries a lot of debt, there’s a very reliable earnings stream coming in to service that debt, while it pays solid distributions to shareholders.
In my view, Transurban is one of the most attractive businesses on the ASX. The distribution has increased by an average of 13% per annum for the last 5 years, and is forecast to increase by another 6% per annum over the next 2 years.
Shares currently trade on a yield of 5.1%.
Wesfarmers Ltd (ASX: WES)
Wesfarmers is undergoing a transformation of sorts. The company has sold off its failed Bunnings UK & Ireland expansion, as well as the planned demerger for Coles.
Wesfarmers also undertook sales of Kmart Tyre and Auto Service, as well as its coal mining interests.
Pleasingly, the cash raised is unlikely to burn a hole in the company’s pockets, with Chairman Michael Chaney saying: “That financial strength does not mean that we feel any urgency to make new acquisitions. Apart from the fact that there are many opportunities for growth in our existing businesses, new investments will only occur if we assess them to have the potential to deliver superior returns to our shareholders over the long term.”
Sensible stuff. It looks likely the company will put the cash to good use in its strongest performing businesses, mainly Bunnings Australia & New Zealand and Kmart. These operations continue to have great results and are clearly resonating well with customers.
It’s also possible we see the company make an acquisition if it stacks up. We’ll have to wait and see, but in any case, I believe the management team will allocate that capital prudently.
Wesfarmers is a solid choice for income investors too, with shares trading on a fully-franked yield of 4.4%, or 6.3% grossed up.
Large, established businesses don’t always get people excited, but I think these two companies have bright, profitable futures. These blue-chips are also likely to pay a rising stream of dividends over time, which is enough to get any shareholder excited.
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Motley Fool contributor Dave Gow owns shares of Transurban Group and Wesfarmers Limited. The Motley Fool Australia owns shares of and has recommended Transurban Group and Wesfarmers Limited. The Motley Fool Australia owns shares of National Australia Bank 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.