I’m searching for the best UK shares to buy and own for the next decade. And I believe Associated British Foods (LSE:ABF) could be a great way to boost my passive income over the period.
Dividends at the FTSE 100 food and clothing manufacturer rose strongly, up until the Covid-19 pandemic. Shareholder payouts here rose at a compound annual growth rate of 8% during the decade to 2019.
Rapid growth at its Primark value clothing division helped drive dividends northwards. The defensive nature of its other operations also gave it the financial means and the confidence to grow rewards.
Food sales remain broadly stable at all points of the economic cycle. And ABF owns heavyweight brands such as Twinings tea, Jordans cereals and Silver Spoon sugar. The prices of these popular labels can be hiked without a significant loss in volumes.
Dividend growth
Pleasingly, rapid dividend growth has resumed following the troubles of the pandemic. And City analysts expect cash payments to continue rising, resulting in 2.2% and 2.5% dividend yields for the financial years to September 2023 and 2024 respectively.
It could be argued that ABF carries higher risk than many other retailers. Its pledge to keep prices at Primark locked until the autumn could be a gamble in normal times. In a period of high cost inflation this is a brave play to make.
Yet latest financials this week show the resilience of the company’s model. It now predicts sales will rise by a better-than-expected 20% in its first half. ABF also hiked its estimates for adjusted operating profit. The business is shifting massive volumes of its cut-price fashions to continue driving the bottom line.
Why I’d buy ABF shares
Primark is the jewel in the company’s crown. And as an investor, I’m excited by the retailer’s aggressive expansion across Europe and the US. Monday’s update revealed that all of its new stores opened in the first half “are performing well and have high sales densities”.
ABF plans to enter its 15th market (Romania) in the coming months and to almost double the number of stores it operates in North America. The business is also investing heavily in its website to push customer engagement to the next level.
Already launched in the UK and Ireland, Primark’s website will be available in its remaining territories by the middle of 2023. This could prove a significant profits driver in its own right as consumer habits change and web engagement supporting physical store sales continues to grow.
The retailer’s market share is rising rapidly as cost-conscious shoppers stretch their budgets. It rose 50 basis points year on year to hit 6.8% in the first half.
But the appeal of value apparel is no momentary fad and ongoing expansion could deliver significant long-term returns. I think ABF could be a great way to boost my passive income.
