London Stock Exchange Group (LSE: LSEG) is known for delivering its shareholders multi-bagging long-term returns. But the stock also declined a long way between 2008 and 2009 in the wake of that decade’s financial crisis and credit crunch.
But if I’d invested £1,000 in the shares of the global financial markets infrastructure provider five years ago, how much would I have now?
Should you invest £1,000 in Carlsberg Britvic right now?
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Turbulent financial markets
To answer that question, it’s worth noting the period has been a turbulent one for financial markets. The pandemic and the war in Ukraine have upset things economically and geopolitically. And there’s a lot of volatility on the share price chart from the summer of 2019 onwards.
But in February 2018, I could have bought the stock at about 3,989p. And that compares with today’s price near 7,508p. So the gain has been around 3,519p per share from movements in the level of the stock over the past five years.
And the financial record of the business has been strong over the period. For example, the compound annual growth rate (CAGR) for multi-year revenue is running at about 32%. And earnings have a CAGR near 13% with operating cash flow coming in at a healthy looking 48%.
So with such a robust performance, it’s unsurprising to see that the CAGR for shareholder dividends has also been strong. And the figure is currently running around 17%. Indeed, that rising stream of shareholder payments would have been worth having.
And my calculations show I’d have collected just over 369p per share in dividend payments. So that can be added to the gain made on the share price to give a total five-year return of 3,888p per share, or just over 97%.
Therefore, ignoring buying and selling costs, a £1,000 investment in London Stock Exchange Group shares five years ago would be worth around £1,970 now. And the stock would have been a decent performer in my diversified share portfolio
Driven by earnings
What went so right for the business? The answer to that question can be summed up in one word: earnings.
As in so many stock market success stories, the primary driver of progress has been the way the business managed to grow and compound its profits. And London Stock Exchange has done that by executing well and finding new business areas to help it expand and grow.
One example is last December’s announcement of a strategic partnership with Microsoft. The directors reckon the aim is to build “next-generation” services that will “empower” LSE’s customers. And, of course, enhanced services should potentially generate bigger profits for the business.
However, as with all enterprises, positive expectations don’t guarantee growth. And all businesses can face setbacks from time to time. Indeed, it’s even possible for investors to lose money on the shares if buying them today. We only have to look at that weak period for the stock in the noughties for proof of that.
Meanwhile, the forward-looking dividend yield is running near 1.5% for 2023. And although that’s not a high value, I’m tempted to dig into the business with further research now.
My aim would be to hold the stock for the long term as the ongoing growth story hopefully plays out.
