Earlier this month, I bought a new FTSE 100 dividend stock for my ISA. I reckon this stock is capable of generating solid gains and income over the long term, so I plan to hold on to it for at least the next decade.
Interested to know what company I invested in? Read on.
My new stock
The stock I bought was InterContinental Hotels Group (LSE: IHG). It’s a leading hotels business that operates in over 100 countries worldwide and owns a range of well-known brands including InterContinental, Kimpton, Regent, and Holiday Inn.
Why I bought IHG
I’m bullish on IHG for a number of reasons. For starters, the company operates in the travel industry, which is booming right now. This is illustrated by the fact that IHG recently posted 27% revenue growth for H1.
Secondly, the group is well placed to benefit from the retirement of cashed up Baby Boomers, who love to travel. These individuals are likely to spend heavily on hotels over the next decade (one of the reasons I plan to hold the stock for 10 years).
Third, IHG is a beneficiary of luxury spending. With top-shelf hotel brands such as Six Senses Hotels Resorts Spas and InterContinental Hotels & Resorts in its portfolio, the company is well placed to benefit from spending on luxury experiences in the years ahead.
Potential for strong returns
I also like the financials here. IHG is a very profitable company (thanks to its franchise business model). Over the last five years, it has generated an average return on capital of 16%, which is impressive given the disruption Covid caused.
Companies that can generate big returns like this tend to be good long-term investments. Warren Buffett’s business partner Charlie Munger puts it well when he says: “If the business earns six percent on capital over 40 years and you hold it for that 40 years, you’re not going to make much different than a six percent return – even if you originally buy it at a huge discount. Conversely, if a business earns 18 percent on capital over 20 or 30 years, even if you pay an expensive looking price, you’ll end up with one hell of a result.”
Meanwhile, the group just increased its dividend by 10%. This is a sign of confidence from management.
As UK portfolio manager Nick Train recently said, the dividend increase/maintain/cut decision made by a company “captures an enormous amount of information” about that company’s medium-term prospects.
Share price momentum
Finally, the stock has a lot of positive momentum right now. Not only is it in a strong uptrend but it is near 52-week highs. This is bullish, in my view.
And brokers are raising their price targets for the stock. For example, HSBC just increased its target to 6,550p from 6,000p. This is also bullish.
Risks
Now, there are a few risks here, of course. One is the valuation. Currently, IHG’s P/E ratio is about 19. I think that’s fair, but it’s above the market average. If future results were disappointing, the stock could see its valuation fall.
A major slowdown in consumer spending is another. This could see revenue growth stall.
Overall though, I see a lot of appeal in this FTSE 100 stock. That’s why I bought it for my ISA.
