1 FTSE 100 stock I’d buy today to aim for a million

ISA millionaires tend to buy dividend stocks. But Stephen Wright thinks the FTSE 100’s growth stocks that may be better for investors building wealth.

| 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.

Image source: Getty Images

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.

According to AJ Bell, all of the top 10 stocks owned by ISA millionaires on its platform are members of the FTSE 100. And most of them are dividend stocks.

Shell, Lloyds Banking Group, Aviva, and National Grid all make the list. But they’re not the stocks I’d choose to try and build wealth if I were starting out today

Growth vs income

For the vast majority of people, building a £1,000,000 investment portfolio’s going to take time. That means it’s important to identify companies that have great long-term prospects.

I’m not saying Lloyds and National Grid are going to do badly over the next 20 or 30 years. But when I think about which stocks will be worth more in the future, these aren’t the names that come to mind.

Over time, what makes the value of a stock go up is the underlying business finding ways to increase its earnings. And that’s difficult to do for a company that distributes a lot of its income to shareholders.

With a couple of exceptions, I’d focus on the companies that aim to reinvest the cash they generate to grow future profits. That’s where I think the best chance of reaching a million comes from.

A high-performing conglomerate

Halma’s (LSE:HLMA) a great example of the kind of stock I have in mind. The company does pay a dividend, but this only accounts for around a third of the firm’s net income. 

Meanwhile, the business has been investing for growth. And over the last 10 years, revenues have increased by 180% a year and earnings per share are up 154%. 

Created with Highcharts 11.4.3Halma Plc PriceZoom1M3M6MYTD1Y5Y10YALL15 Aug 201915 Aug 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

During this time, the Halma share price has gone from £6.09 to £25.18 – a 313% increase. That’s enough to turn a £1,000 investment a decade ago into £4,134 today. 

The company’s shares going up faster than its earnings makes it more expensive on a price-to-earnings (P/E) basis than it used to be. And that’s a risk that often comes with investing in growth stocks.

Compounding

Halma’s an industrial technology conglomerate. The key to its past growth has been a combination of adding new businesses to its organisation, as well as helping them grow and operate more efficiently.

Opportunities to grow by acquisition can become more limited as a company gets bigger. This has been true of the likes of AMETEK, Dover, and Illinois Tool Works.

Halma though is a lot smaller than any of these companies, which makes me think its size isn’t going to be an issue for some time. That’s why I’d back the company to keep doing what it’s been doing.

With revenues currently growing at 10%, this would seem to be the case so far. And if it can keep doing this, I think it will more than justify its current share price over the long term. 

Aiming for a big payday

Past performance isn’t a guarantee of future returns. But I think Halma has a business model and an approach that’s going to prove durable for some time. 

A dividend yield below 1% might not make it the investment of choice for ISA millionaires. But it’s the stock I’d choose to try and get to that level.

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.

Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Aj Bell Plc, Halma Plc, and Lloyds Banking Group Plc. 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

Young Asian woman holding a cup of takeaway coffee and folders containing paperwork, on her way into the office
Investing Articles

£20k to invest? 2 FTSE 250 dividend stocks to consider for a potential £1,220 passive income!

I think these two very different high-yield FTSE 250 stocks could be great sources of dividend income over the long…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

3 cheap growth shares that might prove to be hidden gems

Our writer thinks this trio of cheap shares might be worth considering for a growth-oriented Stocks and Shares ISA right…

Read more »

Investing Articles

Are Legal & General shares gaslighting me?

Harvey Jones is beginning to doubt his own take on reality. He thinks Legal & General shares are a brilliant…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Up just 8% in 5 years, what’s going on with the National Grid share price?

Over five years, the National Grid share price has grown -- but far less than the benchmark index of which…

Read more »

Investing Articles

Could Aston Martin be a millionaire-maker FTSE 250 stock?

This writer is wondering if cratering Aston Martin stock from the FTSE 250 might be worth a punt in his…

Read more »

Tanker coming in to dock in calm waters and a clear sunset
Dividend Shares

3 reliable FTSE 250 shares to consider buying for rising passive income

Paul Summers identifies three mid-cap stocks that all boast enviable records of throwing more cash back to their shareholders each…

Read more »

Investing Articles

How do Lloyds shares measure up as a GARP investment?

Hopes of strong profits growth continue to drive Lloyds shares skywards. Does the FTSE 100 bank now still offer value…

Read more »

Investing Articles

I asked ChatGPT to name the best UK stock to buy in March — and was stunned!

When Harvey Jones asked artificial intelligence to pick a UK stock for him to buy, it chose a company he…

Read more »