If you have £10k or any other amount to invest today, buying FTSE 100 stocks could be a good option.
However, picking stocks that have the potential to produce high returns over the long term is tricky.
With that in mind, here are two companies that have a solid track record of delivering high returns for investors and may continue to do so in the years ahead.
FTSE 100 stocks to buy
Marketing and support service company DCC (LSE: DCC) tends to fly under the radar for most investors. The business provides the boring but essential services of distribution and marketing for industries such as petrochemicals and pharmaceuticals.
These sectors are not very profitable. For the past six years, the FTSE 100 company’s operating profit margin has averaged 2.5%. However, far from being a drawback, this is actually a competitive advantage.
DCC’s size means it can operate more effectively than smaller competitors at these margins.
Reinvesting profits
DCC also has a strong track record of reinvesting profits back into operations to reinforce its positions in existing markets or to buy smaller peers. This approach has helped the company grow earnings at an annual rate of 13% since 2015.
This trend may continue going forward. The company’s competitive advantage should allow it to maintain its position in various sectors. Distribution is also defensive. There will always be a need for moving goods and services around the country.
As such, investors may benefit significantly from buying this stock today. As well as the FTSE 100 company’s impressive earnings growth over the past six years, the shares also support a dividend yield of 2.1%.
Segro
FTSE 100 real estate investment trust (REIT) Segro (LSE: SGRO) also provides a boring but essential service. The group owns and operates ‘big box’ warehouses, which are crucial infrastructure assets for the e-commerce industry.
Over the past six months, online sales in the UK have jumped by around 50%. This has left many retailers scrambling to catch up. Companies like Segro are rushing to meet demand. The FTSE 100 company recently raised £680m from shareholders to fund new developments. It was planning to raise £650m, but demand was so strong, the firm decided to increase the offering.
High investor demand for the company’s shares and its exposure to big box assets has helped the stock rise about 50% from its March low, outperforming the FTSE 100.
This should help support the company’s expansion plans. And as the REIT adds more property to its empire, investors should see higher total returns through dividend growth. The stock currently supports a dividend yield of 2.3%, and the distribution has increased by roughly 100% since 2014.
As the business plans to increase its property footprint significantly over the next few years, the payout may only increase from current levels. Earnings growth may also translate into high capital returns.
Therefore, for investors looking to get rich over the next decade, Segro maybe a good FTSE 100 stock to buy.
