Do you have cash on hand, ready to inject into an ISA? A Cash ISA is a safe option that guarantees you won’t lose any money. But with best-buy interest rates standing at about 1.5%, you’ll pay a price for that safety.
In my view, it makes more sense to use a Stocks and Shares ISA for long-term savings — five years or more. Today I want to look at two FTSE 250 companies whose past performance has delivered outstanding shareholder returns.
One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.
I’ll explain why I think there’s a good chance these firms’ winning behaviours will be repeated over the coming years.
227 years of success
The WH Smith (LSE: SMWH) share price has doubled over the last five years, as strong growth in the group’s travel business has offset weaker performance on the high street.
The travel business is almost certainly the key to future growth, but it’s no new venture. The company opened its first travel branch in London’s Euston railway station back in 1848.
What does all of this have to do with buying shares today?
Firstly, the firm’s 227-year history and continued evolution suggests to me that this business is a long-term survivor. Unlike some other high street stalwarts — such as Debenhams — WH Smith has adapted and remained highly profitable.
Secondly, the latest figures from the company suggest that management is continuing to make smart, forward-looking decisions.
Sales at WH Smith rose by 8% to £695m during the six months to 28 February. This growth was led by the travel division, where sales rose by 18% in total, including a 10% contribution from recent US acquisition InMotion.
Trading profit from the travel business rose by £3m to £44m. This was enough to offset the fall in high street profits, which fell by £2m to £48m.
Although the future of the high street business is often questioned, it’s worth remembering that it remains very profitable. One reason for this is that the firm’s high street rent costs are falling by an average of 33% on each lease renewal.
Super shareholder returns
WH Smith has returned £1bn to shareholders since 2007 via dividends and buybacks. The shares have risen by more than 400% over the same period.
The group’s current performance suggests to me that these strong returns could continue. Although the shares look pricey on 19 times earnings and with a 2.7% dividend yield, I continue to rate WH Smith as a long-term buy.
I think this is a great business
Another business that’s delivered outstanding returns to patient shareholders is Howden Joinery Group (LSE: HWDN). This business sells kitchens direct to tradesmen from its network of depots all over the UK.
By focusing on local trade buyers only, Howden gains a loyal army of expert, repeat customers. The company is also able to avoid the showroom, staff and support costs that would be needed for a retail operation.
Sales have risen by 47% since 2014, while profits have climbed 70%. This has been achieved with an increase of just 20% in the number of depots.
Even in a recession, this is a stock I’d be happy to hold. My strategy would be to buy more shares at lower prices, in order to enjoy bigger gains when the market recovered.
With a 2019 P/E of 15 and a 2.4% yield, I rate Howden as a long-term buy.