Does Terry Smith own any FTSE 100 dividend stocks?

Terry Smith is the hottest fund manager in the UK right now. But does he own any FTSE 100 (INDEXFTSE: UKX) dividend stocks?

| 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.

Terry Smith is probably the most popular fund manager in the UK right now. His Fundsmith Equity fund, which invests on a global basis, has returned approximately 72% over the last three years. That’s a phenomenal performance.

The interesting thing about Smith’s investment strategy is that there’s nothing overly complicated about it. He simply buys high-quality companies that have competitive advantages, and holds them for a long time.

Do any FTSE 100 dividend stocks meet Smith’s criteria? Yes – here’s a look at two Footsie stocks that he currently owns.

Reckitt Benckiser

One of his key FTSE 100 holdings is consumer goods champion Reckitt Benckiser (LSE: RB), which owns a powerful portfolio of health & hygiene brands such as Nurofen, Durex, and Harpic. At 31 October, Reckitt was the fifth-largest holding in his fund, and its half-year report shows that during the first six months of the year, Smith spent a whopping £233m on RB shares, making it the second-most purchased stock in the fund during the period. 

When you take a closer look at Reckitt Benckiser, it’s not hard to see why Smith likes the stock. Not only is the company a proven long-term performer, but it also has a growth story going forward, as around 30% of sales come from the world’s emerging markets, so it looks well placed to benefit as wealth across emerging economies rises in the years ahead. Furthermore, return on equity is high (five-year average: 25%), and the company has a phenomenal dividend growth track record, having increased its payout by nearly 600% over the last 20 years.

Should private investors follow Smith and pile into Reckitt? Looking at the current valuation, Reckitt trades on a forward-looking P/E of 20.3, and sports a prospective yield of 2.5%. I don’t think those metrics are crazy, given the stock’s quality. However, with a little patience, I think the stock may be available a little cheaper than that in the months ahead, as investors panic about rising interest rates. So for now, I’m holding back and waiting for a more attractive entry point.

InterContinental Hotels

Another FTSE 100 stock that Smith holds is InterContinental Hotels (LSE: IHG), which owns an impressive portfolio of hotel brands including InterContinental, Holiday Inn and Crowne Plaza. According to Hargreaves Lansdown figures, IHG is the 10th-largest holding in the Fundsmith Equity fund right now.

I can see the appeal of owning this hotel stock. While shorter performance could be impacted by political or economic uncertainty, over the long term, growth of the hotel industry is likely to be driven by a number of powerful trends. For example, there’s the world’s ageing population to consider, with many over-60s likely to travel in retirement. Then, there’s rising wealth across the emerging markets, which should also be a growth driver for the travel industry over time. Throw in cheaper airfares and easier mobile bookings, and the outlook for the hotel industry looks quite favourable, in my view. But is the stock a ‘buy’ right now?

After trading up near £50 in June, IHG shares have pulled back recently and currently trade under £43, which translates to a forward P/E of 19.1. I think value is beginning to appear. But like Reckitt Benckiser, I think it could be worth waiting for a more attractive entry point here.

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.

Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended InterContinental Hotels Group. 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.

More on Investing Articles

Investing Articles

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »