Could Dynamic Duo Diageo plc And GlaxoSmithKline plc Make You A Millionaire?

GlaxoSmithKline plc (LON: GSK) and Diageo plc (LON: DGE) are the perfect shares to get rich slowly.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The £1m mark is a key goal for many investors and the most effective way to hit this target is slowly, without taking excessive risks. Personally, I think the best investments to help you do this are GlaxoSmithKline (LSE: GSK) and Diageo (LSE: DGE). 

Glaxo and Diageo won’t run you into Warren Buffett overnight, but they will help you meet your savings goals. Indeed, his first rule of investing is “don’t lose money”, the second rule is “don’t forget rule one”. Losing money can be extremely damaging to you investment returns and even a small 10% loss can hold you back for years.

And neither Glaxo nor Diageo will cost you money. Their shares may fall in the short term but over the long term they should push steadily higher.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Defensive companies

You see, Diageo and Glaxo are defensive companies. Diageo is the world’s largest alcoholic beverage company, with some of the world’s bestselling spirit brands in its drinks cabinet. Meanwhile, Glaxo is a leading pharmaceutical company, which manufactures a broad selection of every day treatments and consumer goods that have become consumer staples over the years.

So, Diageo and Glaxo are not going to go out of business any time and it’s highly unlikely that either company will see its share price go to zero. 

With this being the case, investors can buy and hold the two companies’ shares in their portfolios over the long term without much worry. What’s more, both Glaxo and Diageo have a history of returning the majority of their earnings to investors in the form of dividends. Through the power of compounding, these cash returns have helped accelerate total returns achieved from the investments.

The power of compounding

If you invested £1,000 in Diageo during 1995, with dividends invested that stake would be worth £5,200 today, an average annual return of 10.10%. Similarly, if you’d purchased £1,000 of Glaxo stock during 1995, that stake would be worth £4,412 today, after achieving an average annual return of 7.9%. 

These figures may not seem like much at first glance, but for the long-term investor the returns really start to add up. Over four decades, a £1,000 investment in Glaxo, made during 1995 will be worth around £23,000 by 2035. However, the Diageo investment would worth a staggering £55,000 by 2035.

If you were to invest £1,000 in each company and add an additional £1,000 to each holding every year, based on the above rate of growth, your portfolio would be worth just under £1m by 2035.

Based on these numbers then, Glaxo and Diageo could make you a millionaire. 

Glaxo currently trades at a forward P/E of 17.3, which seems expensive but the company trades at a discount of about 10% to its international peers. The company’s shares offer a yield of 4.9%. Diageo currently trades at a forward P/E of 20.4, in line with its international peers and the company offers a dividend yield of 2.6%. 

Our best passive income stock ideas

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns shares of GlaxoSmithKline. The Motley Fool UK has recommended GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

Building a second income stream in 2025 is now more important than ever

With the backdrop of today's economic landscape, Mark Hartley investigates the importance of a second income and how to build…

Read more »

Google office headquarters
Investing Articles

Down 29% and 26%, these ‘Magnificent 7’ growth stocks are still on sale!

Both of these mega-cap growth stocks are more than 25% off their highs right now. And Edward Sheldon believes they…

Read more »

Investing Articles

My favourite UK stock is up 365% in 5 years and analysts still say it’s a strong buy!

Harvey Jones loves this top UK stock but was wondering whether it would finally run out of steam. Its response…

Read more »

Investing Articles

Is the stock market going to crash when the tariff window expires?

The stock market’s rallied on news of a 90-day pause to some US tariffs. But could it be set to…

Read more »

Investing Articles

2 investment trusts to help investors become Stocks & Shares ISA millionaires

One of the biggest challenges for new Stocks and Shares ISA investors is which investments to make. Dr James Fox…

Read more »

Investing Articles

The Greggs share price has plummeted for good reason! It’s now a proper dividend stock

Dr James Fox explores whether the beaten-down Greggs share price represents a potential buying opportunity or a value trap.

Read more »

Working from home due to social distancing
Investing Articles

A year ago, £10,000 in Tesco shares — at today’s price — is now worth…

Tesco's provided solid investor returns since April 2024 thanks to strong share price gains and healthy dividends. Can it keep…

Read more »

Investing Articles

Just released: our 3 top small-cap stocks to consider buying in April [PREMIUM PICKS]

Small-cap shares tend to be more volatile than larger companies, so we suggest investors should look to build up a…

Read more »