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My 5 Desert Island Shares

http://www.fool.com/investing/general/2013/01/18/my-5-desert-island-shares.aspx

David O’Hara
January 18, 2013

I'm sure you've all heard the joke:

Q: What's the definition of a long-term investment?
A: A short-term investment that has gone wrong!

In the spirit of long-term investing, I asked myself what shares I would like to have in my portfolio if I suddenly found myself stranded on a desert island. These are the shares that I feel I could turn my back on for years and leave to deliver a solid return.

Company

Price (pence)

2013 P/E (forecast)

2013 yield (forecast)

Market cap (millions of pounds)

ARM (LSE: ARM)

856

47.2

0.6%

11,630

HSBC (LSE: HSBA)

691

12.0

4%

125,770

Royal Dutch Shell (LSE: RDSB)

2,242

8.9

4.9%

139,450

SABMiller (LSE: SAB)

2,963

19.7

2.2%

46,970

Vodafone (LSE: VOD)

161

10.4

6.4%

78,690

Vodafone
In the last 15 years, Vodafone has matured from a tech stock to a utility.

Today, Vodafone is one of the outstanding income opportunities on the market. The dividend has been rising every year for the last 12 years. The historic yield on Vodafone's shares is the fifth-biggest yield in the FTSE 100.

Both profits and dividends are expected to rise by about 4% in 2014. This puts the shares today on a 2014 price-to-earnings ratio of 9.9 with an expected dividend yield of 6.4%.

At the end of 2012, Vodafone received a 2.4 billion pound dividend from its U.S. joint venture, Verizon Wireless. Vodafone is currently in the process of spending 1.5 billion pounds buying back its own shares in the market. This will help the company to increase its own dividend in the future.

Recent speculation over the status of Vodafone's minority stake in Verizon Wireless lifted the shares. With the buyback only 18% done, there is real scope for further price rises.

ARM
Ignore the high rating for a moment; ARM has been a great long-term investment. In the last five years, shares in ARM are up almost sevenfold.

ARM first came to prominence as the company that designed microchips for mobile phones. The shares soared in the dot-com boom as speculators piled in. The growth that the company went on to deliver did not live up to these fevered expectations, and the shares fell. But the smartphone boom that began in 2007 ushered in a new bonanza for ARM shareholders. In August 2008 you could buy the shares for less than 100 pence; three years later, they were trading around 600 pence.

The company is now making hay in a third market: tablet computers. I think these devices could become more ubiquitous than the television and a bigger part of family life. ARM is providing a high-margin product at the center of an industry that I believe is still in its infancy.

Royal Dutch Shell
Whatever happens while I am on my desert island, I am sure the rest of the world will keep consuming energy. For this reason, I'm sticking Shell in my portfolio.

Shell rivals Vodafone as "Dividend King of the FTSE