There aren’t many companies out there that make for truly buy-and-forget shares, but there are a handful of FTSE 100 giants that have proven over many decades that they can deliver outsize returns without requiring much babysitting by shareholders.
Can past performance be repeated?
One that I think fits the bill is British American Tobacco (LSE: BATS). Now, given consumer trends, it may seem odd to recommend a tobacco company as a buy-and-hold share, but I think BATS still fits the bill.
This is because the group has shown over the past few years that it can continue to grow sales and profits despite fewer people in developed countries taking up the habit. Since 2013, the group’s revenue have grown from £15.2bn to £20.3bn last year, while operating profits over the same period leapt from £5.5bn to £6.5bn.
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The group has notched up this performance by increasing prices, growing market share in developed countries, increasing sales in emerging countries, and making acquisitions. In 2017 these moves helped boost its revenue by 6.5% on an organic, ex-acquisition basis while operating profits were up 7.8% on the same basis.
However, including the effects of the £41.8bn acquisition of Reynolds American, it saw statutory revenue rise a whopping 37.6% with operating profits up 39.1%. Aside from the significant short-term boost to earnings, the real benefit of this acquisition will be felt over many, many years as it cemented the group’s leading position in the most profitable tobacco market outside of China.
All of this growth has seen earnings per share rise significantly over the period, which has allowed management to boost dividends steadily to 195.2p last year, which works out to a 4.53% yield at today’s share price. With decent growth potential, great income and a valuation of just 14 times forward earnings, I reckon now could be a great time to begin a position in a proven long-term winner.
Listening to what shareholders want
But if tobacco stocks don’t catch your eye, then fast-growing insurer Prudential (LSE: PRU) may. The group recently announced plans to split itself into two listed businesses. The new business will take on the UK/Europe asset management and insurance bits of the business that are being spun off, while Prudential plc will retain the Asian and American operations.
This move was a long time coming as it separates the low-growth UK and European business from the capital-light, high-growth Asian business and hugely profitable American arm. For long-term investors, I believe the latter could prove a fantastic,, durable holding as it will be well-positioned to build upon the group’s long history in Asia to continue growing profits there by double-digits.
In fact, last year Asian operating profits increased 15% as increasingly wealthy consumers from China to Vietnam sought out insurance and asset management services. In the years ahead, I see little reason for this trend to slow and Prudential’s strong presence in the region should stand it in good stead.
While the insurance sector will always be somewhat cyclical, I reckon the soon-to-be trimmed down Prudential could be a great long-term holding. Add in already impressive growth over the short term and a 2.6% dividend yield, and Prudential is one stock I’d stash in my retirement account for a long, long time.
