I think only a few companies are worth buying and holding for the next 10 years. However, I believe Tesco (LSE: TSCO) shares fall into this bracket. And today, I’m going to explain why I’d purchase the stock for my buy-and-hold portfolio.
Slow and steady
The problem with picking shares to own for the next 10 years is that it’s impossible to tell the future. We don’t know what the world will look like a decade from now and which companies or technologies will exist.
This is by far the most significant challenge all companies face. No industry is exempt. For example, 10 years ago, Arcadia was one of the most successful retailers in the world. Today what’s left of it has been carved up after it collapsed last year. Arcadia’s mistake was missing out on the online retail revolution.
At the same time, oil producers such as Tullow Oil have been wrong-footed by the falling price of oil. New technologies have allowed companies to extract oil faster and in previously uneconomic regions.
Food and drink retailing is not immune to change, but it’s insulated to a certain extent. Consumers will always need to eat and drink, so the market will always be there. Therefore, companies that can deliver products to where consumers want them at the lowest costs should have a guaranteed market. Tesco has been supplying food and drink to UK consumers for decades. Today, it’s the largest retailer in the UK, with a virtually unrivalled distribution and store network.
As long as the company continues to invest in its store network and distribution system, I think it should stay on top. This suggests the outlook for Tesco shares is favourable in the long-run.
That said, food and drink isn’t a rapid growth market. As such, I’m not expecting Tesco to generate market-smashing returns year after year. Instead, I think the company could be a great addition to my portfolio as a slow and steady income play.
Buying Tesco shares
Based on the qualities outlined above, I’d buy Tesco as an income investment. The stock is set to support a dividend yield of 3.8% in 2021, rising to 4.7% in 2022.
Of course, these are just projections at this stage. There’s no guarantee the corporation will hit these targets. Still, I think the projections show the company’s potential as an income investment.
That’s not to say the company doesn’t face challenges. As well as the hurdles outlined above, the businesses may also face problems if costs rise substantially. That would put pressure on profit margins and may limit its ability to return cash to investors.
Despite these risks, considering the company’s defensive nature, I believe Tesco shares are one of the best income plays to buy right now for the long term. I think the stock is unlikely to generate outstanding returns, but it’s also unlikely to produce significant losses, in my opinion. That’s why I’d buy the corporation today.
