There are not that many companies in the FTSE 100 that have a standout track record of creating value for shareholders. Sugar to clothing conglomerate, Associated British Foods (LON:ABF) (LSE: ABF) is one of them.
Over the past 10 years, shares in this FTSE 100 stalwart have produced a total return for investors of 13.5% per annum, that’s including dividends compared to just 10.7% per annum for the FTSE 100.
Over the past 15 years, the company’s performance is even more impressive. It has produced a total return of 10.8% annualised, outperforming the FTSE 100 by 2.2% over the period. According to my calculations, at this rate of return, every £10,000 invested in the stock 15 years ago is worth more than £48,000 today.
Changing with the times ABF has profited from the growth of its fashion brand Primark, which has become an international success story over the past decade. Management has reinvested cash flows from the firm’s legacy food and ingredients businesses into Primark, to make it a significant component of group income.
Thanks to its contribution, earnings per share have grown at a compound annual rate of 8% for the past six years, as revenue has risen from £13.3bn to £15.5bn.
It looks as if the company is on track to report further growth this year. Today the business announced that sales during the first nine months of its financial year increased 3% year-on-year, with the clothing business leading the charge. Primark sales increased 4% during the reported period thanks to new store openings, even though like-for-like sales fell.
A family firm One of the reasons why I believe the company has been so successful in creating value for shareholders is the fact that it is still majority owned by its founding family. Research shows that family-owned businesses tend to outperform over the long run because they concentrate on long-term investment decisions and do not try to boost short-term profits at the expense of that investment.
Just over half of ABF’s outstanding shares are owned by Wittington Investments Ltd, established by Garfield Weston, the founder of ABF’s group of predecessor businesses. What’s more, the current CEO of the company is a descendant of the founder.
The fact that the founding family continues to own such a large percentage of indicates to me that this conglomerate will continue to create value for shareholders for many years to come, and that’s why I think this stock could help you make a million. Indeed, it is already made billions for its founding family as the group has grown from a small enterprise into one of the Footsie’s largest companies with a market capitalisation of £19.4bn over the past 80 years.
Dividend record Associated British Foods has paid and increased its dividend for decades, and payout growth has averaged 7% per annum for the last six years. Analysts expect the dividend to grow a further 16% between now and 2020. Unfortunately, the stock only yields 1.8%, but the payout is covered nearly three times by earnings per share, which I think is a much more important quality for a long-term income investment.
So overall, if you are looking for a stock to buy and hold that has the potential to make you wealthier, I highly recommend taking a closer look at this one.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Associated British Foods. 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.
Motley Fool UK 2019