This FTSE 100 stock has doubled in 1 year. Here’s why it’s still a screaming buy

The FTSE 100 stock has performed very well at the stock markets over the past year. This Fool looks at its long-term dividend performance.

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Business development to success and FTSE 100 250 350 growth concept.

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Since this time last year, a number of FTSE 100 stocks have made significant gains. Like the saying goes, it is darkest before the dawn — many stocks were at real lows just before the November 2020 rally began. So it follows that they look much better now that conditions are vastly improved. But the equipment rental company Ashtead (LSE: AHT) is an outlier even among these. The stock has actually doubled in value since last year!

And here is the best part. Unlike many other cyclical stocks, it was not even struggling that much last October. Its share price fell dramatically in March 2020’s stock market crash, of course. But by this time last year, its share price had already bounced back up. So much so, in fact, that it had already surpassed the pre-pandemic highs seen in early 2020. And in the past year, its share price has more than doubled from those already elevated levels. 

Robust performance for Ashtead

Clearly, Ashtead seems to be doing something right. The company, which rents equipment for construction, industrial, and general purposes, reported a strong set of results last month. Both its revenues and earnings were up for the first quarter of its current financial year. Its debt was down and it even increased its revenue guidance. With such positive numbers, it is no surprise that the company’s share price continues to rise. 

Rewarding FTSE 100 income stock

On the face of it, the one drawback is its low dividend yield of a measly 0.7%. But I reckon that is only because its share price has been rising so fast. AJ Bell recently did some research on dividend growth among FTSE 100 stocks, which revealed interesting results. Ashtead has actually seen the fastest compounded annual growth rate (CAGR) in dividends over the past decade among all FTSE 100 stocks. At 29.3%, this growth rate far surpasses the next fastest dividend growth, delivered by the Intermediate Capital Group, of around 12%. 

And that is not all. Because of this fast dividend growth, of all stocks it would have given me the best dividend yield today if I had bought the stock a decade ago. This yield would be at around 30%. Moreover, its dividend growth is expected to continue being strong. In 2021, its dividends are expected to increase by 13%, and by 12.5% in 2022. 

Bright prospects

Considering that much of its business comes from the US is a good sign as well, I think. While the US recovery is now expected to be somewhat slower than initially forecasted, it is still strong. This should continue to benefit the likes of Ashtead. 

What I’d do

With such growth and the promise of even more progress, the FTSE 100 stock is an expensive one. Its price-to-earnings (P/E) ratio is almost 32 times, which is significantly higher than the average FTSE 100 ratio of around 20 times. But then again, I reckon that is the price I pay for a fast-growing stock. The last time I wrote about Ashtead, I decided to wait and buy it on dip. I do not think I will wait any longer. It is a screaming buy for me. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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