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2 FTSE 100 dividend stocks I’d buy and hold until retirement

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The secret to successful long-term investing is finding good companies that can deliver sustained growth. Although low-growth companies might beat the market over short periods, over long periods they probably won’t.

Today I’m looking at two FTSE 100 stocks with an impressive track record of growth and a history of outperforming the market.

Bid refusal makes this a buy for me

Paper-based packaging specialist Smurfit Kappa Group (LSE: SKG) has been the subject of a takeover attempt by US rival International Paper for the last three months. But after two possible offers and a “lack of engagement by Smurfit Kappa’s Board of Directors,” the American firm has walked away.

Smurfit’s share price rose by 20% when International tabled its first offer at the end of February. In a sign of investor confidence, the shares have held onto these gains today, despite the failure of this takeover bid.

I’m not surprised. Smurfit’s focus on recyclable packaging for food and logistics seems a good bet for long-term growth to me.

Surging profits

The firm’s after-tax profits have risen from €240m in 2012 to €417m in 2017. Some of this growth has come from acquisitions, but profit margins haven’t been sacrificed in pursuit of size.

Operating margins have remained stable in a range between 7.5% and 10%. And the group’s return on capital employed has risen from 9.1% in 2012 to 12.3% in 2017. This is important because it measures profits against money invested in the business, including acquisitions.

A Warren Buffett buy?

All too often, companies overpay for acquisitions which boost their profits, but deliver a lower ROCE. That’s not happened here — even as Smurfit has expanded, its ROCE has risen.

This ability to deploy new capital and generate improved rates of return is one of the characteristics billionaire investor Warren Buffett looks for in a firm. The other attribute Mr Buffett targets is a fair price. So is Smurfit cheap enough to buy?

Analysts expect the group’s after-tax profits to rise by more than 30% to €577m this year. This leaves the shares looking affordable, on a forecast P/E of 13.5 with a dividend yield of 2.8%. I’d rate these shares as a long-term buy at this level.

An old name with a big future

The man from the Pru was part of British culture for many years. But these days Prudential (LSE: PRU) is focused on the Asian insurance market, where growth prospects are much stronger.

The group recently announced plans to tighten its focus on Asia by demerging its M&G asset management business. As I explained at the time, I believe this is good news for shareholders. The group’s focus on Asia may well attract a higher valuation without UK-focused M&G.

The shares certainly look good value to me at the moment. Earnings per share have grown by about 5% each year since 2012. Strong cash generation has supported average dividend growth of 10% each year over the same period.

As with Smurfit Kappa, profitability is good. Prudential generated a return on equity of 18% last year and this figure has averaged 17.5% over the last five years. With the shares trading on 12 times forecast earnings and offering a 2.7% yield, I believe these shares are likely to deliver a market-beating performance over the next five to 10 years.

Buy-And-Hold Investing

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Roland Head 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.