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The Compass Group share price continues to climb. Here’s what I’m doing now

Jabran Khan — Tue, 26 Jul 2022 16:32:00 +0000

Many shares have pulled back in recent months due to macroeconomic and geopolitical headwinds. Compass Group (LSE:CPG) shares have bucked that trend. Could the rising Compass Group share price be an opportunity for me to buy quality shares?

Catering services

As a quick reminder, Compass Group is one of the world’s largest contract caterers. It has operations in approximately 45 countries across the globe. It offers its services to a multitude of sectors and locations such as schools, offices, and factories as well as travel companies. Furthermore, it owns and runs coffee shops, bakery stores, and vending machines too, which diversify its offering.

So what’s the current state of play with the Compass Group share price? Well, as I write, the shares are trading for 1,886p. At this time last year, the stock was trading for 1,484p, which is a 25% return over a 12-month period. I believe Compass Group shares have climbed due to pandemic restrictions easing.

Challenges

Firstly, macroeconomic headwinds could hamper Compass’ growth, performance, and returns in the near future. Soaring inflation, the rising cost of raw materials, and the supply chain crisis could impact it negatively. Rising costs could squeeze the profit margins that underpin performance, shareholder returns, and investor sentiment. Next, supply chain issues could have an impact on its operations and sales too.

Despite restrictions easing, alternative ways of working, educating, and travelling could have a negative impact on demand in the long term. Businesses may feel they do not need to contract catering as much anymore. This is something I will keep an eye on in future performance updates.

The positives and my verdict

So to the positives then. I noted that pre-pandemic, Compass had a consistent track record of performance. I do understand that past performance is not a guarantee of the future, however. Full-year results for 2022 are due later this year. These will provide me with insight into the company’s trading post-pandemic and whether it can regain pre-pandemic momentum. A Q3 update released today made for excellent reading, however. Sales momentum had pushed revenues above 2019 levels. Net new business levels increased and underlying margin levels increased too. Compass could be set to surpass pre-pandemic trading if these numbers are anything to go by.

Next, I am buoyed by Compass’ growth to date. It has become one of the largest in its sector. I believe its profile, presence, and diverse business model should set it in good stead to continue to perform and provide stable investor returns. It also has an eye on growth to continue expanding its reach above its current point.

I noted that Compass Group shares would boost my passive income stream through dividend payments. At present, its current dividend yield stands at 1.5%. I am aware that dividends can be cancelled at the discretion of the business at any time, however.

I like the look of Compass shares. The Compass Group share price has steadily climbed in recent months. This is a reflection of easing restrictions and performance heading back towards pre-pandemic levels. I believe it will continue to rise. The passive income opportunity is a bonus. I would add the shares to my holdings.

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Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Compass Group. 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.

The FTSE 100 (INDEXFTSE: UKX) rose last week. Can it continue?

Charlie Keough — Tue, 27 Jul 2021 07:15:03 +0000

Although up over 6% year-to-date, the FTSE 100 is down over 45 points in the past month. England’s ‘Freedom Day’ (July 19) led to a large slump in the Footsie. Although the government was keen to lift all restrictions on social distancing, face masks, and more, worrying data on Covid case led to a fall in the index. That said, last week still saw over a 2% rise. So, what does the rest of 2021 have in store?

Why did the FTSE 100 fall?

First, let’s take a closer look at why the slump occurred. The removal of all guidelines on 19 July dented both investor and businesses confidence in the stability and recovery prospects of the UK economy. You would expect the reopening of the economy to boost business, but coming at a time when Covid cases were growing, many believed this could have a dampening impact. If cases rise, even though the vaccination programme continues, the rest of 2021 could be plagued with high levels of self-isolation and even the reintroduction of other restrictions. This would likely lead to a fall in the FTSE 100.

To add to this, higher inflation rates have also had a negative impact on many businesses. As my fellow Fool Jonathan Smith explained, rising rates could lead to higher debt for firms.

Will it keep rising?

The next few months will be crucial, and I suspect that the performance of the FTSE 100 will be linked to the Covid situation in the UK. A rise in cases, or a change of direction by the government (Chief Medical Officer Chris Whitty has already hinted of the need for potential future lockdowns), would undoubtedly impact investors’ confidence levels.

Another issue with rising Covid cases is the effect it would have on certain sectors. For example, if flights are halted again, or if further countries join the government’s ‘red list’, we could see a fall in share prices. Rolls-Royce, a business that I analysed earlier this month, stand out in this respect. Compass, one of the world’s largest catering groups, could also take a hit should rules on large gatherings be altered. If cases continue to surge across Europe, there could be a delay in some countries reopening, affecting a raft of FTSE 100 stocks.

With all this said, I still don’t expect to see a major fall. I think the chances of the UK entering another full lockdown are slim. Also, countries are better equipped to deal with Covid now than when we saw the initial crash back in March last year.

Yes, I expect the rest of 2021 to be a period of volatility. We may see further periods of decline as recovery will be far from quick. However, as more economies reopen, I expect to see a gradual rise in the FTSE 100 towards pre-pandemic levels. A 21% drop in coronavirus cases over the last seven days is good news and could be the first signs of the third wave receding. The 183 point gain witnessed last week may have pre-dated more positive moves to come.

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Charlie Keough has no position in any shares mentioned. The Motley Fool UK has recommended Compass Group. 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.

3 top British stocks I’d buy with £3,000

Harvey Jones — Fri, 18 Jun 2021 10:20:02 +0000

If I had £3,000 at my disposal today, I would go hunting for top British stocks and split my money between three of them. Even though the FTSE 100 has rallied strongly over the last year, there are plenty of opportunities out there as Covid restrictions ease.

Top British stocks like FTSE 100-listed Compass Group (LSE: CGP) are gearing up to benefit from the recovery. Its share price is up 44% over the last year, although growth has flattened out in recent months.

Compass sells catering services to factories, offices, colleges, sports and entertainment facilities. Its business model was inevitably hit hard by the pandemic.

Top British stocks are fighting back

The bulk of its operations are focused on the US, where lockdowns are easing faster than in the UK. Recent Q3 figures showed revenues down a third to £8.4bn, but the future looks brighter, as canteens reopen and profit margins recover. Management has worked hard to keep costs down, and repaid £25m of furlough support.

Business is picking up and half of new contracts are for first-time outsourcers, up from a third pre-pandemic. The big risk is that the recovery stalls, while the working from home revolution could hit canteen demand, but for now Compass is pointing in the right direction.

Water company Pennon Group (LSE: PNN) is a top British utility stock and could balance Compass nicely. The pandemic has hit profits, which fell 12.3% to £215.3m last year. The group has also entered a tighter regulatory period. Pennon did report a full-year profit after tax of £1.8bn, but this was mostly down to the £1.7bn sale of Viridor.

Management is using the cash to pay down £1.1m of debt. It also plans to buy Bristol Water for £425m. It is also lining up a £1.5bn special dividend and £400m of share buybacks. It’s good to see Pennon rewarding loyal shareholders and this offsets the disappointment of last year’s dividend rebasing.

One downside is that its 1.9% yield is disappointingly low. It is set to rise by 2% above inflation for a five-year period but investors could get a better return elsewhere, for example, from top British dividend stock National Grid, which yields 5.3%. That leaves investors relying on some share price growth to get a satisfactory return, which is not guaranteed.

I’d spend my remaining £1,000 on this recovery play

FTSE 250-listed construction group Balfour Beatty (LSE: BBY) expects to claw its way back to pre-pandemic revenues this year (assuming vaccines see off the Delta variant). As the UK’s second biggest building company, this top British stock should thrive when it’s construction time again.

Balfour Beatty enjoys an average monthly net cash balance of around £600m. It is also raising funds from disposals, and plans to buy back £150m of its shares this year.

When the pandemic hit, Balfour Beatty suspended its dividend. It is now starting to repair this, and has a strong £17bn order book. New infrastructure projects include HS2, Hong Kong Airport and Oak Hill Parkway in Austin, Texas. A word of warning. A second-half recovery is priced into this stock, which could plunge if it doesn’t come through.

These top British stocks are not without risks, but all are keen to reward loyal shareholders and I’d happily invest £1,000 in each.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Compass Group and Pennon Group. 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.

2 FTSE 100 stocks I think should appeal to growth AND income investors

Paul Summers — Thu, 06 Feb 2020 12:50:08 +0000

Those new to the market often feel the need to attach themselves to one (and only one) strategy from the off, labelling themselves as either growth or dividend investors in the process.

While understandable, this kind of black and white thinking is arguably restrictive. There are, after all, many stocks that offer both the possibility of capital gains as well as a reliable income stream.

Here are two examples from the FTSE 100, one of which provided another encouraging update to investors this morning.

Rising revenue

Compared to some of its index peers, food and support services provider Compass (LSE: CPG) rarely hits the headlines. Today’s trading update — released to coincide with its Annual General Meeting — is unlikely to change things. That said, it should provide owners with the reassurance to stay invested.

Organic revenue for the final three months of 2019 rose by 5.3% with a strong performance in North America making up for a sticky patch in Europe (partly due, the company stated, to “a less favourable Sports & Leisure calendar”). Revenue from the company’s operations from the rest of the world — including markets such as Australia — also climbed 4.7%.

Based on these numbers, the Chertsey-based business made no change to its outlook for 2020, stating that “organic growth around the mid-point of our 4-6% guidance range” was still expected.

Worth the cost

Shares in Compass are up almost 75% over the last five years compared to the 9% achieved by the FTSE 100. The total gain will be even higher once dividends are taken into account.

Unsurprisingly, the stock now trades at an expensive valuation (22 times forecast earnings) relative to the index in which it features. Nevertheless, I think it can be justified.

Earnings per share growth of around 7% is predicted in FY21, bringing the valuation down to 20. Once bedded-in, the recently-acquired, Nordic-focused Fazer Food Services should also help bump profits higher.

And Compass’s income credentials? Some might baulk at the relatively low 2.2% yield, but it’s worth highlighting that the firm has an excellent record of lifting its annual payouts.

Assuming it continues to do so in the years ahead, those buying now with the intention of holding for many years can expect to generate a much higher yield on their original investment as the value of the company also increases.

Another hiker

Luxury brand Burberry (LSE: BRBY) is another example, at least in my view, of a company offering its investors a tempting mix of both growth and income.

Although fears surrounding the spread of the coronavirus could temporarily hit earnings in the short term, this is a business that is likely to benefit hugely from the rise of wealth in emerging markets whose populations covet Western brands.

Like Compass, Burberry is far from being the biggest dividend payer in the FTSE 100, yielding ‘just’ 2.2% at the current share price. Again, however, it ticks the box for consistently increasing its cash returns with another, near-9% increase expected in FY21. Personally, I’d much rather own a company distributing an adequate but rising dividend (and reinvesting the majority of its profits back into the business to generate great returns — which Burberry does) than one with limited growth prospects and a sky-high yield it can barely afford.

Burberry’s shares currently trade on 23 times earnings. Taking the above into account, I think that’s a price worth paying.

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Paul Summers owns shares of Burberry. The Motley Fool UK has recommended Burberry and Compass Group. 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.

Forget the Cash ISA! I’d buy these 2 unsung heroes that have been smashing the FTSE 100

Harvey Jones — Sat, 16 Nov 2019 12:36:05 +0000

The Cash ISA best buy tables make dismal reading. You can barely get 1.5% a year on instant access, and a little over 2% if you lock your money away for up to five years. It’s a lousy return compared to the average long-term historical growth of 7% a year on the FTSE 100.

These two FTSE 100 companies have outperformed the index lately, roughly doubling your money over the past five years. The strange thing is, you may not have heard of either of them, even though they are the 15th and 17th biggest companies in the UK, by market capitalisation. Here’s why you might consider buying them inside a Stocks and Shares ISA today.

RELX

I worry that many private investors overlook business-to-business operations like RELX (LSE: REL), because the name is so unfamiliar. Yet this is a massive operation, with a market close to £36bn, making it bigger than National Grid, Barclays, Tesco and many other better-known names.

Formerly Reed Elsevier, it is a global provider of information-based analytics and decision tools for professional customers, that does everything from help scientists make new discoveries to preventing online fraud and money-laundering.

The share price has been on a tear lately, rising 83% over five years, and 20% over the last 12 months. Its latest update reported steady 4% growth in underlying revenue, while it has completed £550m of a planned £600m share buyback.

The forecast yield of 2.5% is lower than the FTSE 100 average of 4.5%, but management has been highly progressive, raising its payout by 75% over the last five years. RELX stock is relatively expensive, trading at 20 times forecast earnings, but with those earnings forecast to grow 28% this year and 8% next, the momentum could continue.

Compass Group

Here’s another behind-the-scenes behemoth that is surprisingly large, with a market cap of nearly £32bn. Compass Group (LSE: CPG) specialises in food, hospitality and support services and it’s a massive operation, employing 550,000 people across 50 different countries.

It’s also a runaway success, investment wise, with the share price up a whopping 106% over five years, against less than 10% for the index as a whole, and 33% in the last 12 months. That’s fine if you like hot momentum stocks, not so good if you like bargains, with the Compass Group share price now trading at 24 times forward earnings.

On the plus, those earnings are expected to rise 9% this year and 8% next, driven by a particularly strong performance in North America. Management continues to generate growth through acquisitions, and this stock could give you some protection against tougher economic times.

Again, the dividend is relatively low, with a forecast 2% yield, covered 2.1 times, but the pace of growth is rather more impressive. In 2015, the dividend stood at 29.4p. By 2020, analysts are predicting 43.69p, a rise of almost 50% over six years.

You can find far cheaper stocks on the FTSE 100, and stocks with more dazzling dividends, but few more consistent performers. So again, it may be worth paying a premium price. I’d pick them over any Cash ISA I can see right now.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays, Compass Group, RELX, and Tesco. 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.

Forget buy-to-let! I’d buy these 2 FTSE 100 dividend growth stocks in an ISA today

Peter Stephens — Mon, 22 Jul 2019 11:06:36 +0000

With house prices falling in London and the South East, the outlook for the buy-to-let sector is uncertain at present. As such, investors in the sector may be unable to generate the strong capital growth enjoyed in the past, while also seeing their net incomes fall due to tax changes.

As such, investing in FTSE 100 stocks that have solid track records of dividend growth could be a shrewd move. They may offer scope for a high income return, as well as the potential for capital growth. With that in mind, here are two large-cap shares that could become increasingly appealing income opportunities over the long run.

Compass Group

Over the last four years, support services company Compass Group (LSE: CPG) has increased dividends per share by over 9% per annum. It has been able to do so due to its consistently-rising bottom line, with the company’s strategy focused on generating efficiencies and simplification. As part of this, it has made disposals while also engaging in acquisitions. This could provide it with a stronger growth opportunity in the long run.

Since Compass Group’s dividend payout is currently covered 2.1 times by net profit, it seems to be highly affordable. Therefore, the company may be able to increase dividends at a similar pace to profit growth without hurting its financial position over the medium term.

With the company’s bottom line due to rise by 9% in the current year, its potential to become an increasingly appealing income share remains high. Therefore, despite a dividend yield of just 2.1%, it could be a worthwhile income investing purchase.

Ferguson

Plumbing and heating specialist Ferguson (LSE: FERG) continues to reap the benefits of a rapidly-growing US economy. In its most recent quarter, the firm recorded a rise in ongoing revenue of 8.4% in the US. It has also been able to improve gross margin, while maintaining its strong financial position. This should provide it with scope to make further acquisitions that could improve its long-term growth outlook.

Over the last four years, Ferguson has increased dividends per share at an annualised rate of around 15%. Despite such a rapid rate of growth, its shareholder payouts are currently covered 2.8 times by profit. Alongside its improving financial prospects, this suggests dividends could increase at a rapid rate over a sustained period of time – especially with its relatively strong cash flow.

While the stock may have a dividend yield of just 2.4% at the present time, its shareholder payouts could be relatively high over the long run due to their growth potential. As such, with the US economy forecast to continue its strong growth rate, now could be the right time to buy a slice of the business from both an income and growth perspective.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended Compass Group. 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.

Are these 2 FTSE 100 dividend growth stocks more exciting than they look?

Harvey Jones — Thu, 30 May 2019 14:29:52 +0000

Once again, we see a huge mis-match between how a company presents its results and how the market views them.

Cleaning up

FTSE 100 global science and chemicals company Johnson Matthey (LSE: JMAT) prefaced today’s preliminaries for the year to 31 March with CEO Robert MacLeod hailing “another good year with strong sales and operating profit growth.” But markets failed to share his enthusiasm, with the share price down more than 5% at the time of writing.

You ungrateful lot. What do you want? As ever, it comes down to expectations. JMAT posted a 5% rise in revenues to £10.75bn, coupled with a whopping 53% rise in profit before tax to £488m. Earnings per share rose 39% to 215.2p, while the dividend was hiked 7% to 85.5p.

Steady as she goes

I suspect investors were underwhelmed by growth forecasts, which look modest in 2019/20 and weighted to the first half. McLeod expects 2019/20 operating performance growth to be within its “medium term guidance of mid to high single digit growth”. Or maybe investors are struggling to get worked up given that the Johnson Matthey share price has gone nowhere fast since 2014.

Today, the business posted a small dip in return on invested capital (ROIC), from 17% to 16.4%, mainly due to higher precious metal working capital. However, its balance sheet looks strong with net debt of £866m, giving net debt to EBITDA of 1.3 times.

Electric outlook

Johnson Matthey specialises in sustainable technologies and its clean air division, whose catalytic converters appear in a third of the world’s cars, has been boosted by tighter regulation in Europe and China. It should also benefit from the expanding market for electric vehicles.

However, new tech can be a double-edged sword, as rising electric car sales could boost demand for its higher energy density battery materials while simultaneously hitting catalytic converter sales.

The £5.8bn group trades at just 12.1 times forward earnings. Its forecast yield is just 2.8%, but we have seen today that management policy is progressive, and cover healthy at 2.7. The dividend hasn’t been cut for 26 years and my fellow contributor Roland Head says this is a stock he would buy and hold forever.

Finding its way

Compass Group (LSE: CPG) is another FTSE 100 stock that’s easy to overlook, even though its share price has grown 76% over the last five years against just 12% across the index as a whole.

The food, hospitality and support services recently posted a 6.6% rise in underlying revenues to £12.5bn. Operating profits were squeezed by increased cost pressures in Europe, but still climbed 5.8% to £951m.

Nicholas Hyett at Hargreaves Lansdown recently described Compass as a “brilliantly boring business,” while our very own Peter Stephens says it offers resilience and dependable income growth, and anticipates impressive long-term total returns.

Compass has a hefty market-cap of £28.5bn. But, unfortunately, it isn’t cheap at the moment, trading at 21 times forecast earnings. Some might see that as reassuringly expensive.

The yield is also low at just 2% with cover of 2.1 although, again, management is generous and as it has hiked it every year since 2001. Earlier this month, it lifted the interim dividend 6.5% to 13.1p per share. Perhaps it’s a little too boring though.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Compass Group. 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.

Forget a Cash ISA! I’d buy these 2 FTSE 100 dividend stocks today

Peter Stephens — Wed, 15 May 2019 11:38:15 +0000

With the FTSE 100 having a dividend yield of over 4% at present, it’s not especially difficult to find a range of high-yield shares. While they may offer impressive income returns today, long-term investors may be better off also considering stocks that are capable of producing high dividend growth in the coming years.

Such companies could not only deliver improving income returns, but may see their shares become increasingly popular among investors. With that in mind, here are two FTSE 100 dividend growth stocks that could deliver significantly higher returns than a Cash ISA.

Compass Group

The first half results released by food services business Compass Group (LSE: CPG) on Wednesday highlighted the consistent performance the company offers. Organic revenue growth was 6.6%, driven by a strong performance in North America and Europe. It was able to maintain a relatively high margin while also absorbing the additional mobilisation costs in Europe from a higher growth rate.

The company continues to invest in its long-term future. It spent £370m in the period on acquisitions, with many of them in North America. It has also retained a disciplined stance on costs, with a focus on efficiencies helping to offset inflation and mitigate ongoing volume weakness in the UK and Europe.

With Compass Group having increased its dividends per share at an annualised rate of over 9% in the last four years, it’s a relatively consistent income share. Although its dividend yield of 2.3% may not be among the highest in the FTSE 100, the stock offers resilience and more dependable dividend growth than many of its peers. As such, it could post impressive total returns over the long term.

Coca-Cola HBC

Bottling company Coca-Cola HBC (LSE: CCH) has posted impressive growth in recent years. Its bottom line has risen by over 50% in the last four years, enabling it to pay a higher dividend during that time. In fact, dividends per share have increased at an annualised rate of over 12% during those last four years.

With a strong brand and the business having become increasingly efficient in recent years, it appears to offer a solid growth outlook. Although it has a dividend yield of 2.5%, its shareholder payout is covered 1.8 times by profit. This suggests there could be scope for continued dividend growth over the long run.

Furthermore, Coca-Cola HBC could offer capital growth potential. The company is forecast to post a rise in earnings of 17% in the current year, followed by growth of 11% next year. With the stock trading on a price-to-earnings growth (PEG) ratio of 1.7, it could offer good value for money compared to the wider FTSE 100.

As such, now could be a good time to buy it for the long term, with its risk/reward ratio highly appealing.

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Forget the Cash ISA. Here are two FTSE 100 stocks I’d buy and forget forever

Rupert Hargreaves — Fri, 19 Apr 2019 07:00:57 +0000

Cash ISAs are a helpful savings tool, but with interest rates where they are today, these tax-free wrappers aren’t particularly attractive from an investment perspective.

That’s why I’ve invested all my money in high-quality, blue-chip stocks and, today, I’m going to outline the FTSE 100 companies I believe will generate significantly better returns over the long term than cash.

The world needs to eat

First up is the global catering business Compass (LSE: CPG). This company flies under the radar of most investors because it’s relatively boring. The group provides catering facilities around the world, which is a dull, but essential, service. Moreover, profit margins in this business are relatively thin, so it pays to be big in this industry. Economies of scale have helped Compass expand its operating profit margin from just 4.6% in 2013 to 7.1% for 2018.

In the grand scheme of things, the company is still relatively small with a market-cap of £27bn, and sales of £23bn last year. According to estimates, the overall global catering market is worth $203bn a year and is expected to grow at a compound annual rate of around 6% for the next five years. So, there’s still plenty of room for Compass to prosper in this market.

The company follows a buy-and-build strategy, using its financial firepower to acquire smaller peers around the world and then integrating them into the overall Compass ecosystem. The strategy has worked exceptionally well, so far. Net profit has increased at a compound annual rate of 21% during the past six years, and shareholders have seen a total return of 19% per annum over the past decade.

Considering this track record, I think Compass is a great buy-and-forget stock. As long as the company continues to do what it does best, steady earnings expansion should drive share price growth for many years to come.

Family business

My next buy-and-forget stock is Associated British Foods (LSE: ABF). Over the past decade, shares in this business have produced an average annual return for shareholders of 15.6%, outperforming the FTSE 100 by 5.3% per annum.

What I like about this blue-chip company is that it’s still owned and managed by its founding family. Research shows that family-owned businesses tend to perform better over the long term because managers tend to prioritise investment for long-term growth, rather than short-term profit maximisation.

ABF is 54.5%-owned by Wittington Investments Ltd, which was established in 1941 by Garfield Weston, the founder of ABF’s group of predecessor businesses. The current CEO is descendant of the founder George Garfield Weston.

As the company’s managers own so much of the business and have so much at stake, shareholders can rest safe in the knowledge that management will always act with the best interests of shareholders in mind and, in my opinion, this is a fantastic quality to look for in a buy-and-forget investment.

With this being the case, while the stock might look relatively expensive at first glance (it’s currently dealing at a forward P/E of 17.3) I think it’s worth paying up to invest in this family-owned-and-run company that has increased net profit at a compound annual rate of 11.5% for the past six years.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Associated British Foods and Compass Group. 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.

2 FTSE 100 dividend stocks I’d buy for my ISA

Rupert Hargreaves — Sun, 17 Mar 2019 09:00:52 +0000

The ISA deadline is nearly upon us and if you’ve not made the most of your allowance for this tax year, now’s the time to do so. With that in mind, today I’m looking at two FTSE 100 dividend stocks that I’m eyeing up for my Stocks and Shares ISA right now.

Catering giant

The first company I’m considering is the international catering business Compass Group (LSE: CPG). I don’t think it’s unreasonable to say Compass is a fantastic business. Over the past decade, the company’s earnings per share have grown at a steady 8% per annum as the business has chased up organic growth opportunities and completed numerous bolt-on acquisitions. Any cash that management hasn’t been able to re-invest has been returned to shareholders.

The combination of growth and cash returns has helped the shares return 20% per annum for the past decade. That’s turned every £1,000 invested in Compass back in 2009 into just under £7,000 — there are few, if any, other companies in the FTSE 100 that have been able to generate the same kind of return.

Room to grow

And I think Compass still has a tremendous runway for growth in front of it. Even though it’s the largest catering business in the UK, management still sees tremendous scope for the group to grow overseas, reinvesting capital generated from its mature markets into new bolt-on acquisitions and organic growth opportunities.

With this being the case, even though shares in the business are changing hands at a P/E of 20.7, which is above what I would usually consider appropriate for a mature blue-chip, I reckon investors buying today will still be handsomely rewarded over the next decade as Compass continues to do what it does best. There’s also a dividend yield of 2.5% on offer.

Defensive industry

Another company that I’m considering for my ISA portfolio is pharmaceutical giant AstraZeneca (LSE: AZN). Astra is another highly valued security but, once again, I think it’s worth paying the current price of 23 times forward earnings to take part in this company’s future growth potential.

As the world continues to expand, the demand for drugs and healthcare services is only going to grow. As one of the largest pharmaceutical companies in the world, Astra is well placed to capitalise on this growth.

At the same time, the company has spent billions of dollars researching new treatments, specifically oncology treatments, which it has had some success with over the past 24 months.

The City believes as the company continues to develop and market these new treatments, Astra’s earnings per share could increase by as much as 22% in 2020, and continue to grow at a healthy clip in the years following.

According to various forecasts, over the next five-to-10 years, the global pharmaceutical industry is expected to grow by around 6.3% per year. Assuming Astra’s earnings expand at the same rate between 2020 (the last year for which City forecasts are available) and 2025, I estimate the company is on track to earn $6.07 or 459p by 2025, implying the shares are currently trading at a 2025 P/E of 13.8. This seems to me to be an attractive price to pay for such a defensive, global business with fantastic growth prospects. In the meantime, investors can pocket a 3.4% dividend yield.

The post 2 FTSE 100 dividend stocks I’d buy for my ISA appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended AstraZeneca and Compass Group. 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.