Companies on the FTSE 250 have been negatively affected by concerns over Brexit as many have a greater reliance on the UK for profits than the larger FTSE 100 companies. For this reason, many are now priced to buy and there are some companies among them that I believe can grow over the long term. Holding great companies for the long term is an investment strategy endorsed by none other than Warren Buffett and I think these companies I’ve picked, could help you to retire richer.
Used vehicle marketplace BCA Marketplace (LSE: BCA), which owns the brand We Buy Any Car, is one share I feel could provide growing returns for investors for many years. The company operates throughout Europe ensuring it’s not overly reliant on the UK for its operating profit and revenues.
First-half profits highlight BCA’s growth potential. Adjusted operating profit was up 13.3% to £71.4m as revenue rose 22% to £1.43bn. Revenue growth was supported by higher volumes, increased average prices and an increase in the number of vehicles sold under outsourced re-marketing contracts. The interim dividend was lifted 15.4% to 3p a share. Between 2017 and 2018 the total dividend rose by 27% so it’ll be interesting to see if management is confident enough to see that yield growth continuing or whether it slows down.
Overall, I think management has reason to be confident and investors do too. Operating profit has leapt from £16.3m in 2016 to £87.6m in 2018 showing that this is a high growth business and in its annual report, the business states it has opportunities to take further market share. The dividend yield is now around 4% offering investors income as well as the potential for growth as seen in the latest results. Some Fools think differently though.
Water and waste
Pennon Group (LSE: PNN) is a larger FTSE 250 company than BCA. It owns the water company South West Water and waste management company Viridor. Combined, the businesses provide it with revenues of over £1.3bn a year. Its recent interim results showed operating profit rose 9.9% to £178.5m and the interim dividend was lifted 7.3% to 12.84p a share.
It’s particularly good news for investors that the water business did well over the summer as it is much larger. Its pre-tax profits tax rose 4.3% to £100.3m. Meanwhile, revenue at Viridor increased 3.8% to £422.3m and pre-tax profit rose 18.3% to £36.2m. The business was boosted by new ERF facilities and higher contributions from recycling and landfill.
Concerns over regulation of the water industry have pushed Pennon’s dividend yield comfortably above 5%. But it has been receiving payments from regulator Ofwat because it has met customer service and other operational targets. The devastating prospect of nationalisation aside (which may be a problem if the government changes), Pennon doesn’t look like it should be punished by regulators any time soon, unlike some of its industry peers.
With the income on offer, it could well help you retire richer, especially as demand for water and waste management is not going away any time soon. Likewise, demand for vehicles is not going away and I expect BCA Marketplace will continue to reward shareholders.
Of course, picking the right shares and the strategy to be successful in the stock market isn't easy. But you can get ahead of the herd by reading the Motley Fool's FREE guide, "10 Steps To Making A Million In The Market".
The Motley Fool's experts show how a seven-figure-sum stock portfolio is within the reach of many ordinary investors in this straightforward step-by-step guide. Simply click here for your free copy.
Andy Ross has no position in any of the shares mentioned. The Motley Fool UK has recommended Pennon 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.