If you’ve ever opened an investment account, brought a fund or used any kind of financial product, it’s almost a certainty that you will have seen the disclaimer: “past performance is not indicative of future results.” This statement is 100% accurate and you should never make an investment based purely on the historic performance figures. However, these figures can be an extremely important part of the research process.
For example, if a company has performed extremely well for shareholders over the past decade and continues to generate impressive profit margin without relying on an unsustainable competitive advantage or cheap debt, then it’s likely the company will continue to outperform its peers going forward.
What’s more, if a company has prioritised shareholders over the years, it’s highly likely that this mentality will be ingrained in corporate culture and won’t suddenly change with the arrival of a new CEO.
Unilever (LSE: ULVR), Reckitt Benckiser (LSE: RB), Croda (LSE: CRDA) and Compass (LSE: CPG) all exhibit these traits.
Unrivalled network
Unilever has been around in one form or another for nearly 100 years and has built up a unique network of suppliers, distributors, customers and products testers around the world. This network gives the group huge advantage over many of its smaller peers and unless all of these stakeholders turn their backs on the company overnight, the group’s impressive returns are likely to continue. Shares in Unilever currently trade at a forward P/E of 21.1 and support a dividend yield of 3.6%.
Reckitt has built a product portfolio of highly recognisable brands that effectively sell themselves. As a result, the group’s management can afford to slip up or take their eye off the ball as the business will continue to grow without their babysitting. Reckitt currently trades at a forward P/E of 23.9 supports a dividend yield of 2.1%.
Market leader
Croda is a growing leader in the production of speciality chemicals, which is another business that basically runs itself, as it’s very hard for a new entrant to take market share in this highly regulated and sensitive market.
Croda’s growth isn’t anything to get excited about but the company has always returned any excess capital to shareholders alongside a regular dividend payout. Shares in Croda currently trade at a forward P/E of 20.4 and support a dividend yield of 2.5%.
Capital allocation
Like Croda, Compass has always put the emphasis on shareholder returns. By the end of 2018, if the company hits City forecasts, it will have doubled pre-tax profit in the space of five years by following a sensible capital allocation strategy of returning half its profits to shareholders via dividends, while reinvesting the other half in the business. As this strategy has now become ingrained in company policy, it’s likely to continue for the foreseeable future. Compass currently trades at a forward P/E of 21.4 and yields 2.5%.
