They may not garner the headlines that exciting new tech companies do, yet relatively boring-but-reliable companies can sometimes surprise with great returns. Over the past five years this has certainly been the case with shares of Domino’s (LSE: DOM) increasing 133%, Greggs (LSE: GRG) up 104% and Big Yellow Group (LSE: BYG) jumping 136%.
Domino’s franchised model frees the company up from the capital-intensive building and running of individual stores, which is why operating margins in 2015 were a hefty 23%. This model also offers the company steady revenue from licensing agreements and sales of ingredients to franchisees.
Without having to worry about individual stores, management has been able to focus on expansion and investments in technology. After opening up 61 stores last year, it now has 869 in the UK and is ramping up overseas operations in Ireland, Switzerland and Germany. The investments in technology have also paid off as 77% of sales now come from online ordering. Creating easy-to-use apps is one reason like-for-like sales rose a staggering 11.7% in the UK in 2015.
The market has paid attention to this slew of good news and sent shares up to a pricey 23.7 times forward earnings. This is certainly expensive, but if Domino’s can continue to grow earnings by double-digits over the near term as analysts are forecasting, the company is one to watch.
Bakery chain Greggs shares have doubled over the past five years as the company has pivoted from decentralised bakeries to a more centrally-run operation focused on selling food-to-go. This is where Greggs sees its future and it’s moving to close expensive and expansive high street outlets to shift focus to convenience locations.
This has paid dividends so far as revenue has increased 9.5% since announcing the plan in 2013 while the total number of stores stayed roughly level. Greater growth is planned for the near future as the company plans to invest £100m in new distribution centres to support an additional 300 store openings. Looking ahead, growth should be slow and steady so it will be important to see if management can continue to improve operating margins from their current 8.7%.
Business models don’t come much more staid than self storage company Big Yellow Group but shareholder returns over the past five years have been astounding. Aside from share prices doubling, the group’s status as a Real Estate Investment Trust means dividends have been substantial. Over the past five years dividend payouts have increased 140% and now yield 3.4% annually.
The past half year was a bumper one for the business as the company focused on organic growth that paid off as occupancy rates improved 5% to stand at 77.3%. This helped increase like-for-like revenue by 9% and led to pre-tax profits jumping a full 30%.
Analysts are forecasting low double-digit earnings growth for the next few years as the company expands from its current 84 sites and hopefully continues to improve occupancy rates. Unsurprisingly, investors have welcomed this and shares are now trading at a pricey 21 times forward earnings. Despite this lofty valuation, Big Yellow does offer a relatively recession-proof business model and steady growth prospects over the medium term.
Big Yellow’s dividend more than doubling over the past five years is impressive, but the Motley Fool has uncovered a company whose own dividend has increased more than 350% over the same period. This cash-generating machine is detailed in the latest free report, A Top Income Share.
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Ian Pierce has no position in any shares mentioned. The Motley Fool UK has recommended Domino's Pizza. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.