What’s the best way to get rich from the stock market? You could buy high-risk speculative stocks and hope to get lucky. Just like betting on horses, sometimes you’ll make money.
Unfortunately, at some point things will probably go wrong. When this happens, you could face big losses. If you’re already 40 and don’t have any retirement savings, this would be a serious problem.
What I prefer to do is to invest in companies that have made reliable profits for their shareholders over very long periods. I reckon this reduces the likelihood that I’ll suffer a nasty loss.
In this article I’m going to look at two FTSE 100 companies that are both still controlled by their founding families. Both companies have an excellent track record of shareholder returns and skilled long-term management.
Bread, sugar, and fashion
Low-cost fashion and food might not seem an obvious combination, but for shareholders of Associated British Foods (LSE: ABF) it’s worked outstandingly well.
Shares in the group – which owns brands such as Primark, Kingsmill, Twinings, and Silver Spoon – have doubled since 2012. Over the same period, the annual dividend paid by this family-run firm has risen by 63%.
The group’s latest results were published earlier this week, showing another steady year. Sales rose by 2% to £15.8bn, while adjusted pre-tax profits were also 2% higher, at £1,406m.
This performance was underpinned by a year-end net cash balance of £936m, despite investment spending of £837m during the year.
I note that unlike some of the more troubled businesses on the stock market, ABF has almost no debt and continues to invest for a long-term future.
Spending last year included investment in new Primark stores and supply chain improvements, along with capacity growth and acquisitions in the food business.
ABF shares rarely look cheap and currently trade on 16 times 2020 forecast earnings, with a dividend yield of 2.1%. But I think this family business remains an excellent long-term buy that should deliver reliable gains over the next 10+ years.
A safer choice than Woodford!
For more than 200 years, City firm Schroders (LSE: SDR) has managed client investments and grown steadily to become one of the largest firms in this sector, with £450bn in assets under management.
The founding Schroder family retain a 47% voting stake in the firm and are represented on the board. I believe this helps ensure the group continues to be run in a conservative, process-driven, and consistent way.
It’s the very opposite of the personality cult which built up around fund manager Neil Woodford – and ended so badly. Perhaps fittingly, Schroders will be taking over the running of the Woodford Patient Capital Trust at the end of 2019. This news sent the WPCT share price up by 25% on the day it was announced.
A stock I’d buy and hold
Schroders has not cut its dividend for 20 years, during which time the payout has risen by a compound average of 10% each year.
At current levels, the stock trades on about 16 times 2019 forecast earnings. If you choose the non-voting shares (Schroders (LSE: SDRC)), then you should enjoy a dividend yield of 4.6% this year. I’d be happy to add the stock to my portfolio at this level.
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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Associated British Foods and Schroders (Non-Voting). 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.
Motley Fool UK 2019