In my view, being a hands-on landlord was never very attractive to begin with. When you consider the vacancy rate (2.6% on average) and maintenance required for the average rental, it quickly becomes apparent that a buy-to-let investment is far from a genuinely passive source of income. 

Combine that with the average mortgage rate of 1.8% for a five-year fixed loan, and a rental yield of 3% to 5% seems even less attractive to me. Instead, I’d rather focus on my day job and invest all my savings into a real estate investment trust that offers a higher yield for much less effort. 

A quick example

British Land (LSE:BLND), is an excellent example of the sort of investment I prefer. The trust currently owns and manages a portfolio of real estate assets collectively worth £15.4bn. Only 10% of the assets are residential, while the rest are either office spaces or retail units spread across the country. 

Since the portfolio is heavily weighted towards commercial properties, I expect the company to be able to extract a higher rental yield and strike longer lease agreements for units that businesses and institutions rely on. This should ultimately translate to better profitability and stable dividends over time. 

Sure enough, British Land currently offers a quarterly dividend of 7.98p, which implies a 5.2% dividend yield at the current market price per share. Dividends have grown at an annualised rate of 2.3% over the past nine years, while the share price has appreciated 24% over the same period. 

Best of all, these gains and steady quarterly dividends require a fraction of the effort it would take me to assemble and manage a diverse portfolio of office and retail properties. The income from a well-picked REIT is truly passive.  

Others

Of course, British Land isn’t the only REIT I like to monitor. Others such as Land Securities and Segro offer attractive yields as well (4.67% and 2.18% respectively). I’m also watching large-scale warehousing real estate owner Tritax Big Box as a proxy for the e-commerce boom. 

There are plenty of options for investors trying to generate passive income through real estate without the hassle of being a part-time landlord.   

Foolish takeaway

Buy-to-let property is simply too much work. Instead of looking for tenants, maintaining properties, and worrying about interest rates, I’d rather accumulate a hefty position in some robust real estate funds like the ones I’ve mentioned above. For most investors, I believe this is a much better strategy for generating genuinely passive income.

The post Forget buy to let! Here’s how I passively invest in real estate for a 5.5% yield appeared first on The Motley Fool UK.

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VisheshR has no position in any of the shares mentioned. The Motley Fool UK has recommended British Land Co, Landsec, and Tritax Big Box REIT. 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.

It’s worth noting that the price of oil has only shifted along with investor sentiment but for the moment, the supply-demand dynamics of the actual commodity remain unchanged. This means the price could escalate much higher if the supply chain is disrupted or certain countries start hoarding oil strategically. 

In this scenario, I believe two FTSE 100 energy companies could be more in demand, but I like them now for their high yields and determination to become more efficient businesses. 

Royal Dutch 

Royal Dutch Shell (LSE: RDSB) shares have gained nearly 3.9% over the past five days in response to the current situation, but I have to say that I feel it deserves to trade higher anyway. The oil giant was clearly trading at a discount not too long ago. Now the price has caught up to the behemoth’s long-term fundamentals, while the dividend yield remains impressively high at 6.2%. 

After a year of selling off assets in the Middle East and tightening its belt in anticipation of lower oil consumption, Shell is now a much more efficient energy producer and distributor. My Fool colleague G A Chester forecast 25% earnings per share growth and a price-to-earnings growth (PEG) ratio of 0.4 for 2020. 

However, he made his predictions in mid-2019. Since then, the price of oil has moved higher while the number of Shell shares outstanding has dropped as a result of buybacks. The company’s cash flow for 2020 could be higher than anticipated. In other words, the shares are more valuable now, making it the perfect time to add this heavyweight to your watch list.  

BP

BP (LSE: BP) is another key beneficiary of higher oil prices. The shares are up 6.4% since the start of the year, while the dividend yield remains attractively high at around 6.5%.

My Fool colleague Paul Summers estimated a dividend of 32p for 2020, which he says is covered 1.4 times by estimated earnings for the year. However, he made those predictions when the price of Brent Crude was hovering around $64, while the current price is nearly $70. 

In other words, BP’s growth and dividend coverage could be better than expected, making the share an undervalued income opportunity for yield-hungry and risk-averse investors like me. 

What I like about BP, beyond its robust dividend and attractive valuation, is the fact that it is also transitioning to a more diverse business model by adding renewable energy to the mix. The company is already one of the largest natural gas suppliers in the world and has deployed hundreds of millions into acquiring wind farms across the US. 

Foolish takeaway

Oil and gas giants like Royal Dutch Shell and BP are in an interesting position in 2020. They’ve spent years reducing their costs and making their operations efficient and when the oil price rises, they benefit. We all hope the conflict with Iran can be resolved soon and even if the oil price dips again, I still see these two firms as worthy investments.

The post 2 high-yielding FTSE 100 shares I’d buy before the price of oil rises again appeared first on The Motley Fool UK.

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VisheshR 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.

Even moderately lower corporate earnings could have a direct impact on dividends for many investors. The FTSE 100 currently offers a 4.4% dividend yield, which is both historically high and increasingly unsustainable.

Most of the top 10 dividend payers barely cover their annual dividends with profits or earnings. Some, like Vodafone, pay out more in dividends than they earn per share every year. 

If corporate profits are squeezed next year, many of the top payers may have to sustain dividends with their cash hoard or announce cuts. However, some companies have plenty of dividend coverage and are less exposed to the market cycle.

Here are two robust dividend stocks I would consider for next year.   

Insurance giant

Aviva’s (LSE: AV) share price has plummeted over the past few years, but now it seems like the valuation has been pushed too far. You can buy the shares for 6.9 times forward earnings, compared to 17 times forward earnings for the FTSE 100 as a whole.

Even as the share price plummeted over the past three years, the company’s underlying fundamentals improved. Profits have nearly doubled and dividend per share has jumped 44% since 2016. 

The confluence of a falling share price with rising earnings has made Aviva one of the most robust dividend stocks on the FTSE 100 at the moment. Not only is the attractive 7.7% dividend yield much higher than the index average, but the annual payout is also covered by earnings 1.9 times over. 

In other words, Aviva has plenty of earning power to sustain its dividend next year, and since the stock is already beaten down there’s not much downside risk left for shareholders to worry about, in my view. 

Pharmaceuticals 

Selling medicines and consumer staples is arguably a more recession-resistant business model than insurance. GlaxoSmithKline (LSE: GSK) stands out as a clear leader in this industry. Currently worth £86bn, this corporate giant is one of the most well-recognised British names in the world. 

British investors, however, are more familiar with the company as an attractive dividend payer. The share currently offers a 5.6% forward dividend yield. GSK’s dividend coverage ratio (annual earnings divided by annual dividends) is 1.45. The company also has £4.4bn in cash and cash equivalents on its books, which should cover the dividend for an entire year. 

The icing on the cake for investors is the fact that GSK offers potential for capital appreciation as well. The share price is up 22% over the past year and 30% over the past two years. That’s an annual growth rate of 14%.

Bottom line

GSK and Aviva both offer excellent dividend opportunities for income-seeking investors. 

The post 2 FTSE 100 dividend stocks I like for 2020 appeared first on The Motley Fool UK.

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VisheshR has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. 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.

With that in mind, here are two stocks that I believe are relatively low risk and offer either handsome dividends or attractive growth rates. 

Income

Insurance giant Aviva (LSE:AV) seems particularly well-positioned to deliver a sustainable dividend for the foreseeable future. Analysts expect the company to offer an 8.2% dividend yield next year based on today’s price. At the moment, the stock offers a dividend yield of 7.63%, much higher than the average dividend rate offered by other FTSE 100 stocks. 

If you take a look back at the share performance, Aviva will likely strike you as one of the most underrated income opportunities on the FTSE 100 at the moment. The share price has been flat since the global financial crisis ended in 2009. However, underlying profits and cash have both expanded over the past decade. In other words, the share price doesn’t reflect the underlying business. 

At the moment, Aviva has enough cash to cover the annual dividend 1.7 times over. Meanwhile, management has kept the dividend payout ratio low at 52%. That makes the dividend particularly robust. 

Investors can snap this share up at an attractive valuation right now. The price-to-earnings ratio (6.7) and price-to-sales ratio (0.42) both indicate that the shares have been oversold. 

Growth

On the other end of the valuation spectrum is a stock that pays a mediocre dividend and trades at a relatively richer valuation: Kainos Group plc (LSE:KNOS). The Belfast-based software company offers a mere 1.18% forward dividend yield, which is considerably lower than the FTSE 100 average. Perhaps this is because investors have pushed this stock to a price-to-earnings ratio of 38.5.

However, I believe the valuation seems a lot more reasonable when you consider Kainos’ tremendous growth potential. Most high-tech companies trade at richer valuations because of their growth rates or profit margins. 

Over the past year, Kainos’ quarterly revenue has surged 29.3%. Meanwhile, return on equity was last reported at 37.4%. This implies that the share’s price-to-earnings growth (PEG) ratio is close to 1, a sign of fair value.

Selling enterprise software is a lucrative and stable business with magnified profit margins. If management can keep up this pace of growth, Kainos could well be a multibagger over time. Perfect for investors seeking growth-at-reasonable prices.  

Foolish takeaway 

The two stocks mentioned above offer investors strikingly different opportunities. While Aviva offers a higher dividend, its share price has been pretty much flat for the past few years. Meanwhile, Kainos offers a meagre dividend yield but shareholders have been handsomely rewarded with double-digit percentage gains for the past few years. 

Most investors need to make a choice between either growth or regular income, which is why I would deploy £10,000 in either Aviva or Kainos for the best dividend yield or growth potential. 

The post What is the best way to invest £10,000? appeared first on The Motley Fool UK.

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VisheshR has no position in any of the shares mentioned. The Motley Fool UK has recommended Kainos. 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.

Now, I know just how risky it can be to make the wrong bet and just how rewarding it can be to take the right steps and apply the dynamics of compounding over the long term to create sustainable wealth.

With that in mind, here’s what I would do if I was starting all over again with just £1,000. 

Pick a goal

There’s no point in investing without a specific end-goal in mind. Randomly picking stocks from different industries with different characteristics will ruin your long-term performance. Instead, think of your money as a tool that you can leverage to create a specific outcome. 

If you’re looking to protect this amount, you may want to take a closer look at fixed-income exchange-traded funds that offer a steady return. Vanguard’s U.K. Short-Term Investment Grade Bond Index Fund is a good option. 

However, if you’re looking for higher income, you may want to focus on high-yield dividend stocks. According to fellow Fool Rupert Hargreaves, the top 10 dividend-paying FTSE 100 stocks offer an astonishing average yield of 8.8%. 

However, even an 8.8% yield on £1,000 isn’t good enough for me. I prefer companies that hold onto their cash and reinvest it in a business with stellar potential for growth. Software firm Kainos Group, for example, has been expanding its asset value by roughly 26% since 2013. 

At that rate, £1,000 could turn into £10,000 in 10 short years. That’s the sort of bet I like. 

Diversify

Once you’ve figured out if you’re a conservative investor seeking regular income or a growth-hungry investor looking for wealth creation, the next step is to minimise your risk of losing money. 

The easiest way to do this is to spread your bets. Don’t make the same mistake I did and pour half your capital into a single stock. Instead, aim to spread the £1,000 evenly between six to 10 different opportunities. This limits the potential downside for your portfolio.

But don’t over-diversify

Most financial advisers are quick to point out the value of diversifying your portfolio. However, very few would warn you against over-diversifying. Spreading yourself too thin isn’t as risky as not diversifying enough, but it can impact your long-term performance. 

Research indicates that the impact of diversification diminishes after the 20th stock. Which means there is very little difference in the amount of risk exposure for a portfolio of 20 holdings compared to one with perhaps a 1,000 holdings.  However, a 1,000-holding portfolio is much more complicated to create and manage effectively. 

Don’t waste your time and effort. Pick a handful of excellent stocks and watch them closely. 

Foolish takeaway

If you’re just getting started with investing in shares, I recommend picking a long-term strategy for your investments and spreading your bets appropriately.

The post How I’d invest £1,000 right now appeared first on The Motley Fool UK.

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VisheshR has no position in any of the shares mentioned. The Motley Fool UK has recommended Kainos. 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.

Much of their success boils down to some combination of lucrative professions and a lifetime of thrifty spending habits. However, another key ingredient for an early retirement is savvy investments.

I believe investors trying to reach a certain milestone earlier than the average saver need to pick stocks that offer either a higher-than-average rate of current income or future growth. Growth stocks can help savers accumulate a larger asset base to retire later, while high-yield dividend stocks can help retirees with smaller nest eggs maximise their cash flows right away.

With that in mind, here are two FTSE 100 stocks I believe fit the bill perfectly. 

High growth

Ocado Group’s (LSE: OCDO) growth prospects and market potential are unimaginably vast.  The company estimates that the global food distribution market is worth £5.6trn, much of which is devoted to warehousing and last-mile delivery. 

Not only is this a multi-trillion dollar market, but it is also expanding rapidly. Global grocery retail is expected to expand by another £2.7 trillion by 2022, according to the Institute of Grocery Distribution (IGD).

Ocado is a clear leader in this space. The company has a proven track-record and has established brand awareness. This puts it ahead of the competition and should allow it to expand at its current double-digit percentage pace. 

Revenue expanded by 10.3% between 2017 and 2018. In its most recent quarter, sales and average orders per week were both up 11% and 12% year-on-year. This growth rate is a reflection of the company’s transition from a pure online grocery chain to warehouse automation technology giant. 

And today it announced another step forward with news of a deal with Japanese retail giant Aeon to develop Aeon’s online domestic grocery business using the Ocado Smart Platform.

In short Ocado has the right strategy and plenty of room to offer substantial growth over the long term, helping young investors move closer to early retirement. 

High income

At the other end of the growth spectrum is Phoenix (LSE: PHNX) . The company offers no cutting-edge technology or hyper-growth prospects. Instead, it focuses on the arguably boring business of managing books of closed life insurance policies and pensions assets. 

My Fool colleague Rupert Hargreaves went into great detail to explain how this company’s business model works. In short, this is an insurance company that writes policies and also acquires policies from other firms to generate consistent cash flow. 

While the business is boring, it’s incredibly lucrative. Phoenix has 10m policies and £245bn of assets under administration. The robust cash flows from these assets allow the team to offer shareholders substantial dividends. 

At the current market price, Phoenix shares offer a 6.2% dividend yield. That’s more than a third higher than the FTSE 100’s average yield of 4.5%. That dividend yield is enough to generate the UK median household disposable income with just £475,000 in capital. 

The post 2 FTSE 100 stocks I’d buy for an early retirement appeared first on The Motley Fool UK.

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VisheshR 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.

These losses reflect the impact of an intense consolidation and re-branding effort over the past year. Previously known as CYBG, the holding company was re-branded as Virgin Money after it acquired Sir Richard Branson’s challenger bank for £1.7bn. The company also owns Clydesdale and Yorkshire banks. 

Now, the combined entity has declared a £194m loss for the trailing 12 months, a 7% drop in earnings before taxes and a suspension of its 3.1p per ordinary share dividend. The stock initially took a beating, but it seems investors have now reassessed the company’s prospects and have revalued the business much higher. There seem to be two reasons for this. 

Losses due to temporary costs

Back in September, Virgin Money warned investors that the costs associated with Payment Protection Insurance (PPI) claims could be as high as £450m. PPI claims have been a chronic issue for Britain’s banking system for years. 

Meanwhile, the costs of taking over the Virgin Money brand and securing a single banking license pushed the company deeper into the red. 

However, a surge in PPI claims and acquisition costs are far from perpetual. I expect investors will see lower costs next quarter once the brand has been fully integrated and PPI provisions are fulfilled. 

Core business growing

Meanwhile, the core business seems to be firing on all cylinders, at least in terms of growth. Business lending and personal lending expanded by 4.5% and 16.1% respectively this year. Experts have attributed this to the popularity and public awareness of the Virgin brand. 

Management’s decision to cut dividend payments is another positive sign for long-term growth. The team can now hold back more of its annual cash flow and reinvest in expanding the brand.

Investors who recognise the combined entity’s growth potential and long-term efficiencies seem to have bolstered the stock price this week. However, despite the surge, the bank still trades at relatively low valuations. 

The stock currently trades at 4.44 times annual earnings before taxes per share and 0.49 times book value per share. That valuation may be in line with some major banks, but Virgin’s growth rate is much higher due to its smaller size. In other words, the stock seems underpriced. 

Foolish takeaway

Sir Richard Branson’s Virgin brand seems to have helped this company avert disaster. Rising PPI claims and squeezed margins have been offset by the growth in Virgin Money’s personal and commercial lending operations. Meanwhile, the stock seems oversold, which could be the reason why it surged by double-digit percentages this week. 

The post Virgin Money shares are up 20% despite losses. Here’s what I think appeared first on The Motley Fool UK.

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VisheshR 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.

In fact, eight of the 10 funds with the largest capital inflows over the three months to September 30 were passive instead of active, according to research by Morningstar. 

However, passively investing isn’t my style. I genuinely believe some investments can deliver better returns than the benchmark index. Here are my top two picks for exchange-traded funds (ETFs) and trusts I reckon have a better chance of out-performance over the next decade.    

Indian equities

India’s pace of economic expansion has been derailed this year. Not only does the country face a slowing global economy (which impacts trade), but it’s also dealing with a banking and liquidity crisis domestically. India’s gross domestic product growth could slow to under 5% this year, the weakest pace in six years. 

Nevertheless, I remain optimistic about India’s long-term prospects. Legal frameworks for businesses are improving, the population’s median age (27 years) is far below most other countries, and the nation’s technology start-up ecosystem is vibrant. 

JP Morgan Indian Investment Trust offers great exposure here. The trust’s top 10 holdings include some of India’s most popular blue-chip stocks such as Tata Consultancy Services, Axis Bank and ITC. 

Over the past 12 months, each unit of the trust has traded at an average discount of 10.4% to net asset value (NAV). Even as I write this, the discount to NAV is 9.2%. In other words, it’s undervalued.

Considering the fact that India’s economic growth is likely to be far ahead of Britain’s, I believe the chances of this trust beating the FTSE 100 are very high. 

Automation technology

Emerging markets are not the only sector I expect to grow faster than the FTSE 100. The emerging trend of automation and robotics technology is also likely to create tremendous value for early investors over the next few decades.

By 2021, the automation industry is estimated to generate around $238bn (£184bn) globally, according to Statista. 

L&G ROBO Global Robotics and Automation GO UCITS ETF offers investors exposure to this nascent sector. While the largest segment of the fund (44%) is devoted to robotics start-ups and technology companies in the US, its largest holding is actually a British company called Blue Prism Group. 

Warrington-based Blue Prism provides software that allows its corporate clients to automate mundane and repetitive tasks like data entry. The stock constitutes 1.9% of the ROBO ETF and should give you an idea of the other stocks in their portfolio. 

The ETF is up 24.5% year-to-date and currently trades on par with NAV. 

Bottom line

I believe India and the global automation sector will both grow faster than the UK economy, which is why the ETFs mentioned here could probably outperform the FTSE 100 over the foreseeable future. 

The post 2 ETFs I think will beat the FTSE 100 over the next 10 years appeared first on The Motley Fool UK.

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VisheshR 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.

In my never-ending quest for a solid passive income, I’ve come to the conclusion that companies with a hefty profit margin, durable competitive advantage and conservative cash management strategies eventually end up handing back the most cash to shareholders. 

These companies tend to boost their dividends year after year, even when the economic cycle turns, simply because they have so much cash to spare. They also tend to have a track record of steadily increasing dividend payouts for several years and a rosy outlook for growth in the foreseeable future. 

A stock that seems to fit this description perfectly is software giant Sage Group (LSE:SGE). Here’s a closer look at Sage’s dividend strategy.

Steady expansion

Sage has been handing cash back to shareholders since early 2005. Over the past decade, the company has increased its dividend every single year. The payout has compounded at an annual growth rate of 8.65%. For context, the FTSE 100 has delivered a total return ( with dividends reinvested) of 8.3% over the same period. 

Robust fundamentals

The underlying engine of Sage’s consistent payouts is the strength of the company’s business model and its balance sheet. The company has managed to keep raising dividends year after year because revenue and earnings have been steadily expanding. Earnings per share have compounded at a rate of 9.7% since 2014.  

Sage has about 55p of debt for every quid in equity, a 25% operating margin and £351m in cash and cash equivalents on the books, all of which paint a picture of a financially healthy corporation that can sustain dividends. 

Management has also consistently kept the payout ratio around 50%, which means it has plenty of room to comfortably expand dividends for the foreseeable future.  

Excellent outlook

Sage’s pivot away from software services to cloud-based subscriptions has really helped the company thrive in recent years. Not only is this new model more appealing to the company’s enterprise customers, but it also allows the firm to generate recurring revenue and expand margins. 

I believe major corporations that rely on Sage’s platform are likely to stick with it over many years. Meanwhile, the company can always deploy its cash hoard to acquire younger start-ups and tech innovators that add value to the core business and stay ahead of the competition. 

In other words, I expect the Sage team to keep generating value at the same clip over the long term. 

Foolish takeaway

Steadily growing dividends are the key to a stable passive income and early retirement. Companies that can demonstrate an ability to expand cash flow and shareholder returns over multiple years deserve to be on every income-seeking investor’s radar. 

With its irreplaceable suite of enterprise software solutions and its decade-long track record of dividend growth, Sage Group is one of my favourites in this category.

The post This FTSE 100 tech stock is my favourite dividend growth bet appeared first on The Motley Fool UK.

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VisheshR has no position in any of the shares mentioned. The Motley Fool UK has recommended Sage Group. 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.

Luckily, I have more than two decades until I need to retire and the country’s robust financial markets offer plenty of opportunities to expand my wealth over time. With that in mind, here’s how I’d invest my money today to achieve a 100-fold return within 20 years. 

The strategy

Multiplying an investment 100 times over is unimaginably difficult. In fact, most investments never even crack the tenfold threshold. So, how do I hope to achieve my admittedly ambitious target? By focusing on steady growth stocks with long-term prospects. 

I’ll need a company with high margins, a durable competitive advantage and an annual growth rate of over 25.9% to reach my target within 20 years. I also need to be careful to avoid volatile or unpredictable businesses that can leave me with heavy losses over this period. 

My best bet is on the seemingly boring sector of enterprise software. These companies are not as flashy as the young tech start-ups, but they do have patented technology that companies rely on and are willing to pay hefty subscriptions for over many years. Here are my top two picks.

Kainos Group

Belfast-based software company Kainos Group (LSE:KNOS) has a track record of stunning performance. Between listing in July 2015 and July 2019, the stock quadrupled. That implies an annual growth rate of roughly 41.4%. 

However, the stock has plunged since July and is now down by roughly a quarter. In my opinion, that opens up a significant buying opportunity for long-term investors. 

The company’s clientele includes government institutions such as the NHS, the Cabinet Office, Home Office, DVLA and Department for Transport, along with major corporations like Prudential, HP, Netflix and Diageo.

Kainos has a 15.4% net margin, a backlog of orders on the book and a robust balance sheet. Net profit and revenue have both compounded at a rate greater than 26% since 2013. It’s also a robust dividend stock, with a yield of 1.85% and dividend coverage of 1.5.  

It fits the profile of a steadily expanding critical software provider perfectly, which is why it makes my list. 

Softcat

Another similar compound growth machine is Softcat (LSE: SCT). The Marlow-based technology company has been around since the 1990s, but only listed on the stock market in 2015. Since then, the shares have more than tripled in value. 

The company’s software solutions allow companies to manage their digital work spaces, maintain their data in the cloud, protect their operations from cyber attacks and analyse data on their business operations to inform critical decisions. 

It’s a lucrative business with plenty of clients. More than half of the company’s clients are small and medium-sized businesses that have come to rely on its services. But the company also serves public sector institutions such as Dumfries & Galloway Council and major corporations like McLaren. 

Customer satisfaction has been reported at 97%, while the company has just reported 52 consecutive quarters of year-on-year growth. Revenue, gross profit and operating profit expanded by between 29% and 36% over the past year alone. 

Bottom line

These two growth stocks should be enough to multiply my wealth many times over, if not make me a millionaire in two decades. 

The post How I’d invest £10K today for £1m in 20 years appeared first on The Motley Fool UK.

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VisheshR has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Netflix. The Motley Fool UK has recommended Diageo, Kainos, Prudential, and Softcat. 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.