The five best stocks from 1994

Thursday, Dec 06 2012 by
5
The five best stocks from 1994

Active fund managers argue that they can beat the market by picking stocks that do better than the average. Risk and liquidity issues are important factors to consider here but, as an exercise to test this thesis, it is interesting to look back and see what stocks now in the FTSE 100 were the best picks 16-years ago on a total returns basis, i.e. with dividends reinvested.

Since September 1994 the best performer was Capita, a support services company. Second was Tullow, an oil exploration company, third was Sage, a software company, fourth was Antofagasta, a mining company and fifth was Next, a retailer.

The results shed light on the growth versus income argument. Traditional investors argue that the reinvestment of dividends is the key to long-term performance. This is supported by the Barclays Equity Gilts Study which shows that £100 invested in 1899 would now be worth £160 in real terms, but £22,239 if dividends had been reinvested. The performance of Capita illustrates this. In capital terms £100 grew to £3,620. Reinvesting dividends over the 18 years would have yielded an extra 36% (giving £4,911). A similar uplift is evident for Sage and Antofagasta, whilst for Next the uplift from reinvesting its dividends almost doubled total returns over the period to £2,356.

These data also demonstrate the power of compound interest. A seemingly small difference in annualised returns can lead to a vastly different final sum over a long period. Capita’s capital return is only a couple of percentage points lower than the total return (22.1% p.a. and 24.2% p.a. respectively) but by the end of 18 years of reinvesting dividends the outcome is almost £1,300 more.

Returns for Tullow, by contrast, have little to do with dividend flows and are all about growth. Oil explorers reinvest cash-flows boosted by occasional windfalls such as those experienced by Cairn in Rajasthan. (Ironically Cairn would have been in the top five, but payment of its last special dividend in March 2012 knocked Cairn out of the FTSE 100). The dividend yield for Tullow has remained very low since 2003 when the company first paid a small dividend, though it has risen since.

If dividends are that important shouldn’t investors just concentrate on high yielding stocks, where dividends are high in relation to the share price? The danger here is that…

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Disclaimer:  

Past performance is not a guide to future returns. The value of investments and the income from them may go down as well as up and is not guaranteed. An investor may not get back the amount originally invested. For risks relating to specific products, please refer to the relevant documentation for that product.


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Capita PLC provides customer and business process management services. The Company operates through nine segments: Health and Wellbeing, consisting of its health businesses; IT Services, consisting of its data and information technology managed services; Justice and Secure Services, consisting of businesses servicing the police and emergency services market, digital and gamification businesses, and parking services; Professional Services, consisting of local Government and schools software, document and information solutions, and Entrust; Property and Infrastructure, consisting of property consultancy and local Government regional partnerships; Workplace Services, consisting of human resource, and resourcing and learning businesses; Customer Management and International, consisting of customer management business; Insurance and Benefits Services, its employee benefits and insurance business, and Asset Services, consisting of shareholder solutions, and mortgage and banking solutions. more »

LSE Price
1098p
Change
0.4%
Mkt Cap (£m)
7,292
P/E (fwd)
14.4
Yield (fwd)
3.2

Tullow Oil plc is an independent oil and gas exploration and production company. The Company focuses on finding and monetizing oil in Africa and the Atlantic Margins. The Company operates through segments, including West Africa, East Africa and New Ventures. It has a portfolio of approximately 120 licenses across over 20 countries, which are managed under West Africa Business, East Africa Business and New Ventures Business. It has a portfolio of exploration and production assets in Africa, Latin America, the Caribbean and Europe. The West Africa Business focuses on its production and development projects in West Africa and Europe. The East Africa Business has an onshore acreage position in Uganda and Kenya. The New Ventures Business is responsible for the Company's frontier exploration and appraisal activity across Africa and Latin America. The West Africa business includes the TEN Project, which is its offshore development in Ghana, and a portfolio of non-operated production assets. more »

LSE Price
242.2p
Change
-2.0%
Mkt Cap (£m)
2,255
P/E (fwd)
34.1
Yield (fwd)
n/a

The Sage Group plc is a United Kingdom-based company, which provides small and medium sized enterprises (SMEs) with a range of business management software and services, including accounting, human resource (HR) and payroll, enterprise resource planning (ERP), payments, customer relationship management (CRM), mobility and business intelligence. The Company operates through three segments: Europe, which includes operations in France, the United Kingdom and Ireland, Spain, Germany, Switzerland, Poland, Portugal and Sagepay; Americas, which includes the United States, Brazil and Canada, and AAMEA, which include Africa, Australia, Middle East and Asia. The Africa operations are based in South Africa and the Middle East, and its Asia operations are based in Singapore, Malaysia and the United Arab Emirates. Its products include Sage One, Sage 100, Sage 50, Sage ERP X3, Sage Payment Solutions, Sage Office Line, Sage Murano, Sage Pastel, Sage VIP Payroll, Sage Handisoft and Sage 200. more »

LSE Price
604.5p
Change
0.6%
Mkt Cap (£m)
6,487
P/E (fwd)
21.1
Yield (fwd)
2.5



  Is Capita fundamentally strong or weak? Find out More »


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About Rob Davies

Rob Davies

Rob Davies is the Fund Manager of VT Smart Dividend UK Fund, formerly The Munro Fund.. He worked as a professional geologist in Antarctica and Australia before joining the City as a mining analyst.  From 1999 to 2001 he was a writer at The Motley Fool and in 2002 he joined the Private Client Department of Clydesdale Bank as Senior Investment Analyst where he was responsible for writing and maintaining investment policy, selecting securities and portfolio creation. His experience of the stock market as an equity research analyst, personal finance writer and portfolio construction manager has given him a unique background to draw on in crafting this investment process which he now runs at VT Smart Dividend UK Fund, previously known as The Munro Fund. more »

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