Happy Friday.
Today I'm going to reveal how ordinary investors such as YOU could have enjoyed a gigantic 1,051% return from one of the market's most surprising growth investments.
I use the word 'surprising', as this share and its performance may astonish some Fools new to the stock market.
And in a minute I'll disclose the identity of the company concerned.
Let me just confirm this edition Motley Fool Take Stock is not going to be dedicated to an obscure penny share, a blue-sky biotech or a random resources punt — the types of shares that often promise immense returns but almost always end up losing your most of your capital.
Nor am I going to bang on about 'obvious' growth names such as REA Group Limited (ASX: REA), CSL Limited (ASX: CSL) or TPG Telecom Limited (ASX: TPM) — the success of which in booming industries such as online real estate, biotechnology and "new breed" telecoms has been documented many, many times down the years.
And nor am I going to highlight legendary growth names from the States, such as Coca-Cola, McDonald's or Wal-Mart, which have the advantage of a huge domestic market to propel profits higher and lay the foundations for even greater worldwide success.
No, instead I am going to showcase one of the greatest – and certainly one of the most startling – ASX blue-chip performances of the last decade or so.
All hail Woolworths Limited (ASX: WOW) — a stock my family has owned since its IPO way back in 1993.
I must admit, I've shown you many times in the past how long-time investors can collect colossal returns from buying and holding quality companies.
But as I'll explain in a minute, I feel the gains from Woolworths have been so astonishing, I've added its share-price chart here for you today (in dark blue, below), as well as including a total return line (in light blue) to emphasise the additional power of reinvested dividends.
Anyway, take a good look at this chart and – for a few seconds – just savour the amazing wealth Woolworths has created for its ordinary shareholders:
Essentially, you could have made 602% from the share-price gain alone – or an incredible 1051% had you reinvested all of your dividends along the way – between the beginning of 2000 and now.
And all that from simply buying and holding a well-known S&P/ASX 200 stock.
In the meantime, the benchmark index is up a mere 80%, excluding dividends.
The chart is, I feel, one everybody should dream of.
It is a picture of beauty, showing the blue lines relentlessly climbing higher.
The GFC barely registers on the way, and nor do the numerous market corrections and panics.
Woolworths is hardly an obscure company. Anyone could have bought it back in 2000 and held it all the way until now, reinvesting dividends along the way.
As I said above, my family has held it all the way from 1993, when it floated at just $2.45 per share.
Today, Woolworths shares trade at around $36.
This household name has raised its dividend from 28 cents in 2000 to $1.33 per share. Based on its IPO price, the dividend yield is a whopping 54%, fully franked too, no less.
The passage of time truly is an investor's best friend.
Holding stocks for less than a year amounts to little more than flipping a coin. You are almost as likely to lose as you are to win.
But, as illustrated by Woolworths, the odds of success grow perfectly with time.
If you hold for five, 10, 15 years or more, the odds of earning a positive return on stocks after inflation quickly approach 100%, historically.
This chart — taking monthly S&P 500 prices going back to 1871, adjusting them for inflation and dividends, and looking at returns based on various holding periods — shows the percentage of holding periods that generated positive returns:
Back to Woolworths.
Sure, I recognise for many people that investing in the supermarket sector hardly sets pulses racing.
Of course, that's fine by me.
But I am convinced Woolworths is a textbook example of why you do not have to look for sexy growth sectors for life-changing stock-market returns from ordinary shares.
Instead, this simple six-point checklist of:
- A defensive sector;
- Predictable customers;
- Powerful brands;
- Resilient cash flow;
- Strong dividend advances;
- A basic long-term Fool investment strategy of buy, hold, keep holding, reinvest dividend, hold, keep holding, reinvest dividend, hold…
…may be all that you need to pinpoint the next 1051% return from a blue-chip stalwart.
Certainly, it is that sort of vast return that encourages me to study mature, steady and so-called 'ex-growth' companies in our quest to track down tomorrow's greatest investment winners on your behalf.
Although we focus on total return, as emphasised by the returns on Woolworths, we recognise the hugely important impact dividends can and do play on those total returns.
One of the great things about dividends is that they're pretty consistent, even when the market ebbs and flows. Today's income and tomorrow's growth make the five companies great options for incoming-loving investors.
And as for Woolworths, due to the company's size, the capital gains won't be nearly as big as the past. That's fine by me. I'm just happy to watch the fully franked dividends keep rolling in, reinvesting them, year after year after year…
Stock market investing at its simplest. Wealth creation at its best.
