There are various ways to pass on generational wealth, from a property or business to art and antiques. But I think one of the most profitable methods is investing in the FTSE 100.
The index has provided average annual returns of 8% since it was formed back in 1984. Its smaller cousin, the FTSE 250, has even better returns of 11% but is less well-established. When it comes to building such wealth, it’s important to think long term. That means digging out the stocks that have not only a strong past — but hopefully a strong future.
Stocks are usually chosen for either their dividends or growth but I aim to get the best of both worlds. With that in mind, I think these two FTSE stalwarts could fit the bill.
The dividend hero
Spirax Group (LSE: SPX) is a centuries-old British manufacturer of steam management systems. Since starting life in 1888, it’s expanded to 60 countries worldwide. Steam may sound like an outdated industry but I was surprised to find the market for steam traps is expected to double by 2030. They’re used in almost all forms of industrial facilities that vent air (basically, all of them.)
At first glance, the low 1.8% yield doesn’t look like a good option for dividends. But it has a solid history of dividend growth that speaks volumes to its reliable performance. Companies that go through periods of volatility or low earnings tend to cut or reduce dividends. Since the turn of the millennium, Spirax’s annual dividend has grown uninterrupted from 18p to 160p. Even when the share price suffered losses in 2022, the company kept increasing dividends.
Speaking of the share price, it’s down almost 50% since late 2021. Ouch! That doesn’t sound like a wealth machine.
But when in doubt, zoom out.
In the 20 preceding years, it grew over 4,000%, providing annualised returns of 20% per year. The crash came as a result of the post-pandemic recession that hit two of its biggest markets — biopharmacy and semiconductors. This reveals the increased risk exposure it has to certain industries.
But with markets looking up, could Spirax begin a new period of growth? Of course, there’s no guarantee, but in my opinion, it has long-term potential. That’s why it’s on my buying list for July.
The growth giant
InterContinental Hotels Group (LSE: IHG) has been delivering exceptional returns to shareholders since the early 2000s. It’s up 951% since July 2004, providing annualised returns of 12.5%. Naturally, being a hotel group, it suffered losses during Covid. But the recovery has been swift and exceptional.
In fact, it’s grown almost twice as fast in the four years since Covid than the four before it.
That’s lucky because the company is drowning in borrowings. With liabilities that outweigh assets, it has negative equity and $3.2bn of debt. Fortunately, it’s well covered by cash flow and earnings before interest tax (EBIT) are 13.7 times higher than the interest payments.
Furthermore, it faces stiff competition from rivals Marriot and Hilton — not to mention the growth in private property rental apps like Airbnb.
Still, I think the price performance speaks for itself. It’s a wildly popular brand that seems to be going from strength to strength, so I’ll buy some shares next month.
