Every investor wants to own a portfolio of securities they can buy and hold for the long term without having to babysit. In practice, this goal isn’t easy to accomplish. The world changes, economies go through cycles, and new competitors are born every day. The business world is almost as harsh as the natural world, which makes it nearly impossible to hang on to a stock for the long term without constant diligence.
However, even though buying and holding without a keeping an eye on the company along the way is impossible (and inadvisable), you can sway the odds in your favour by investing in businesses that are built for the long term. One such company is Prudential (LSE: PRU).
Built to last
Prudential is the perfect stock to hold for decades because the whole company is based around the concept of long-term investing. Being a pension and savings provider, as well as a life insurer and wealth manager, its management has to keep the more distant future in mind at all times when running the business. If customers start to become worried about the company’s long-term outlook, the firm is unlikely to attract any new business.
And it’s this outlook that has helped Prudential grow over the years. A focus on achieving the best returns for investors and looking to new, developing markets has seen business boom over the past decade, despite all of the headwinds that have impacted the rest of the financial services industry. By 2018 City analysts expect the company’s earnings per share to hit 152p, up 100% from the 2012 figure of 77p. This rapid growth is extremely impressive for a company with a market capitalisation of £45bn.
Shareholders have reaped enormous benefits from this explosive growth. Since 2008, shares in Prudential have charged higher, from a low of 210p to 1,740p at the time of writing for a total capital return of 729%. But that’s not all. Shares in Prudential currently support a dividend yield of 2.7%, and the payout has risen 61% over the past five years. In total, the company has paid out 250p per share to investors via dividends since 2008. If you add this cash return to the company’s share price growth, you get a total return of 1,990p or 848%. On a per annum basis, this works out at 33% each year — a return even Warren Buffett can’t surpass.
There’s no guarantee that this level of return will continue. However, the fact that Prudential’s business is built for the long term means that it’s more than likely that the firm will continue to churn out steady returns year after year.
Put simply, if there’s one stock you want to buy for your retirement fund, Prudential looks as if it ticks all the right boxes.
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Rupert Hargreaves owns shares of Prudential. 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.