I’ve had my eye on this UK stock for the last couple of years. It’s one of the best-performing on the FTSE 100 this millennium. Now I’m ready to buy it.
The stock in question is one of the FTSE’s unsung blue-chip heroes, construction rental company Ashtead Group (LSE: AHT).
It’s the second best performer on the FTSE 100 over the last 10 years, according to figures produced for me by investment platform AJ Bell, with a total compound return of 707.3%.
If I’d invested £10,000 at the start of that run and reinvested all my dividends (as I always do), I’d have a thumping £80,730 today. Over 20 years, it’s done even better.
FTSE 100 growth hero
Last June, I secured a 20-year total return figure, which covered the heady days when Ashtead was smaller but growing at speed. It delivered a scarcely believable total return of 41,408%, with all dividends reinvested. That would have turned £10k into £4.56m. I still can’t get my head round that.
Sadly, Ashtead can’t repeat that given today’s vastly bigger market-cap of £25bn. Another 41,408% would turn it into a £10.4trn company by 2044.
Ashtead may be listed in the UK but it generates 90% of its revenues from the US, via subsidiary Sunbelt Rentals. It’s benefited from the Biden administration’s $1trn US infrastructure bill, by hiring out diggers, cranes, drills, scaffolding, pumps, ventilation systems to companies rebuilding the country.
The last year has been tougher, as US growth slows while a drop in hurricane, winter storm and wildfire activity hit demand for emergency response kit.
The Ashtead share price has been flat since the board warned that full-year revenues would be at the bottom end of its 11-13% target range. It has still grown 16.08% over the last year and 205% over five, with dividends on top.
The recent slowdown looks like a buying opportunity to me, with the group valued at 18.68 times earnings. That’s above the current FTSE 100 average of 12.7 times, but a price worth paying, in my view.
Dividend growth potential
Now here’s the killer figure. Over the last decade, Ashtead’s dividends have increased at an annual compound rate of 21.7%. It’s set to slow, with forecast growth of 8.8% in 2024 and 10.3% in 2025, but that’s still pretty good. The yield may seem low at 1.38% but with a long-term view there’s plenty of income on offer.
As ever, there are risks. The US is buried in debt and its economy may face a reckoning at some point. The dollar’s strong today, boosting Ashtead’s revenues when converted back into sterling. When the Fed starts cutting rates it may slide.
Sheer size means Ashtead cannot match past total return rates. However, CEO Brendan Horgan reckons long-term US growth remains positive due to“the increasing number of mega projects and recent legislative acts”.
I’ll add it to my portfolio as soon as I can. It would be lovely if it dips first. The risk is that it does the opposite, so I won’t hang around.
