A FTSE 100 stock that could create generational wealth

Since 2004, this FTSE share has delivered better returns than any other current UK blue-chip stock. Royston Wild thinks it’s worth a close look.

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Investing in shares can be a wild ride at times. Those who invested in FTSE 100 shares just before the 2008 financial crisis or Covid-19, for instance, would have been left holding their heads in their hands shortly afterwards!

But over the long term, a diversified portfolio of shares can be a significant wealth builder. History shows us that stock markets have always rebounded strongly following economic crises, and that those who ‘bought a ticket’ could reap substantial returns.

During the past 40 years, the Footsie has delivered an average annual return of 8%. It means that someone who invested £300 a month over that period could have made an impressive £1,047,302.

Here’s one FTSE 100 share I believe might generate spectacular generational returns.

Rentals giant

Today, Ashtead Group (LSE:AHT) is a powerhouse in the global rental equipment market. Just before the 2008 financial crisis, it had a 4% share of its priority US market, where it traded from 398 stores.

Right now its market share is more than treble that, at 14%. It is now the country’s second-largest operator with 1,186 rental stores.

Business and individuals in ever-greater numbers are choosing to rent their heavy equipment instead of buying. The advantages are obvious: lower upfront costs, no storage issues, and better cross-project flexibility.

Through heavy organic investment and a steady stream acquisitions, Ashtead has capitalised on this change to great effect. It made $10.9bn in revenues in the last financial year, up from around $1.3bn before the financial crisis.

Pre-tax profits have also ballooned, from roughly $139m to $2.2bn, over the period.

Strong performer

This success story has seen Ashtead deliver stunning capital gains and impressive dividend growth in that time. In fact, it is one of the FTSE 100’s true dividend aristocrats, having grown annual payouts each year for around two decades.

As a result, the company has delivered the best returns of any current Footsie share over the past 20 years. It’s delivered a return north of 35,000% in that time.

The past is no guarantee of the future, of course. And Ashtead could face significant obstacles going forwards, like volatile conditions in its North American and European markets, as well as rising costs.

Bright outlook

However, I expect the company to continue delivering strong generational returns to its investors. This is why it’s now the largest holding in my own shares portfolio.

Analysts at Grand View Research think the US construction rental equipment sector will expand at a compound annual growth rate of 6.1% between now and 2030. Growth will be driven by the country’s strong construction market and a steady stream of major infrastructure projects.

Encouragingly, Ashtead remains committed to expanding to exploit this opportunity, too. It made 26 bolt-on acquisitions last year alone. A strong balance sheet, with a net-debt-to-EBITDA ratio of 1.7 times, gives it room for further investments.

Like any share, Ashtead comes with risk. But I think its strong track record and bright market outlook makes it an excellent FTSE stock to consider today.

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 assessed. Consider taking independent financial advice.

Royston Wild has positions in Ashtead Group Plc. 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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