While the FTSE 100 may experience ups-and-downs through the years, it also offers significant returns for long-term investors. The last decade, for example, has seen the index increase by around 50%, even though it has faced a period of uncertainty in recent years. When dividends are added to this figure, it serves to represent the growth potential of the index.
This is in stark contrast to a Cash ISA. Even the most appealing Cash ISA is only offer an interest rate of just 1.5%, which means the spending power of savers is gradually being reduced by inflation. As such, now could be the right time to invest in the FTSE 100, with these two stocks outlined below appearing to offer long-term total return potential.
With a price-to-earnings (P/E) ratio of 10.8, BP (LSE: BP) appears to offer a wide margin of safety at present. The oil and gas giant’s recent updates have suggested its investment strategy is producing improving returns, while its pipeline indicates it could deliver production growth and rising profitability over the long run.
Alongside its growth prospects, BP’s dividend appeal is relatively high – even compared to the FTSE 100’s 4%+ yield. The stock currently offers an income return of 6.1% from a payout that’s due to be covered 1.5 times by net profit in the current year. This means the company may not be required to post exceptional share price growth in order to outperform the wider index from a total return perspective.
As such, the stock could offer investment appeal. Although it may experience a period of uncertainty as global growth risks persist, BP’s track record suggests that it could provide a relatively resilient performance compared to its sector peers.
Although the prospects for the global economy are relatively uncertain at the present time, Intercontinental Hotels (LSE: IHG) could also offer investment potential. Its recent update showed that while revenue growth has been modest of late, its strategy to gain market share and increase its competitive advantage is working well.
For example, the company is investing in new designs for a variety of its brands so that it can improve the customer experience. It’s also seeking to become more efficient in order to mitigate the potential impact of a slowdown in sales growth.
With Intercontinental Hotels trading on a P/E ratio of around 20.7, it’s not a cheap share compared to some of its index peers. However, with its bottom line due to rise by around 7% in the current year and having a strong position within its industry, it could deliver a high rate of growth over the long run. In doing so, its returns could be significantly higher than those offered by a Cash ISA, which could improve your financial future.
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Peter Stephens owns shares of BP. The Motley Fool UK has recommended InterContinental Hotels 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.
Motley Fool UK 2019