If I could only buy one stock, this would be it

With thousands of stocks to choose from, Rupert Hargreaves highlights the one he’s most positive on.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

If you look at Bunzl (LSE: BNZL) and nearly fall asleep thinking about the company’s business model, I don’t blame you. 

The company is one of the world’s leading distribution groups, supporting enterprises all over the world with a variety of products. These products are generally not big-ticket items, but they are generally essential in the everyday running of businesses. 

Items such as first aid kits, domestic and industrial cleaning products, supermarket packaging, and health and safety equipment. Not exciting, but must-haves that provide a predictable and steady income stream for the firm.

The business is also fantastically well run. For the past decade-and-a-half, Bunzl has churned out consistent growth year after year and organic growth has been supplemented by choice acquisitions of family businesses. Over the past 14 years, the company has acquired 150 small firms to add to its offering. And there’s no sign that this business model will falter any time soon.

Growing the business

Bunzl’s size and leading market position mean that it can achieve margins competitors can only dream of. In the last financial period, the company reported a return on invested capital (ROIC), a measure of profit for every £1 invested in the business, of 16% and a cash conversion ratio of 97%. Looking at these metrics it should come as no surprise that since 1992, Bunzl has been able to increase its dividend per share at a compound annual growth rate (CAGR) of 10%. Since 2004, adjusted earnings per share (EPS) have grown at a CAGR of 11% and the CAGR of the group’s revenue is 10%.

CEO Frank van Zanten has no plans to deviate from this strategy any time soon. Even though Bunzl has spent a total of £3.1bn buying companies to fold into its empire since 2004, it has only touched the surface of the global distribution network. And as the group increases in size, its growth should only accelerate. 

Economies of scale should mean that profit margins widen and this means the group can offer customers better deals. Improved cash generation will free up more funds for acquisitions, helping grow revenues, improve margins and boost profits. Like a snowball rolling down a snow-covered mountain, Bunzl is just getting bigger and bigger.

Shareholders profit 

Its consistent profit growth has generated steady returns for investors. Since 2008, the stock has produced an average annual total return of 14.5%, easily beating the FTSE 100’s average annual performance of around 8% over the same period. 

As long as the firm maintains its strict acquisition policy, I reckon shareholders can expect these double-digit annual returns to continue for many years to come. 

With this being the case, if I had to buy just one stock today to hold for the rest of my life, it would be Bunzl. The company’s current dividend yield of 2.1% and valuation of 18 times forward earnings might not look attractive, but based on its historical performance, I think it’s worth coughing up to be part of Bunzl’s growth story.

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.

Rupert Hargreaves does not own any share 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »