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I’d buy and hold this FTSE 100 dividend growth stock for the next 50 years

FTSE 100 cruise operator Carnival (LSE: CCL) often gets overlooked by investors. Even though it’s one of the largest listed companies in the UK (with a market-cap of £30.3bn, at the time of writing), on average less than 800,000 shares in the company change hands every day. That compares to around 164m shares in Lloyds Banking exchanged daily, making it the most followed and traded stock in the UK by far.

Carnival is often overlooked because the more liquid US stock overshadows its London listing. Carnival is listed both in the UK and on the New York Stock Exchange. More than four times more shares change hands every day in New York than London. 

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Still, the fact that Carnival’s shares are more active in the US is no reason to ignore the company. In fact, I believe the stock could be a fantastic long-term buy-and-forget investment for your portfolio. Here’s why.

Long-term trends

Demand for cruises has increased rapidly over the past few decades, and it doesn’t look as if this trend is going to come to an end anytime soon.

According to the Cruise Lines International Association, 30m travellers will take to the seas in 2019, up 6% year-on-year. Carnival is capitalising on the growing demand for it services by investing in new ships. The company is planning to grow capacity by 5% per annum through 2022, slightly below what analysts are predicting regarding traveller growth, but is a rate management believes is prudent and should stop the group from overextending itself. At the same time, Carnival is working to reduce costs and improve efficiencies across the business. 

Through cost-saving initiatives and product improvements, such as the introduction of a new revenue system in 2017, the company is targeting a return on capital invested (ROIC) — a measure of profitability for every $1 invested in the business — in the double-digits. ROIC hit 9.4% in 2017.

Shareholder returns 

Capacity growth and cost savings are just part of Carnival’s plans. It’s also returning cash to investors with a share buyback. 

For the two years to the end of November 2017, the company returned $3.1bn to investors by buying back shares, and this cash return effort has continued into 2018. When it comes to the firm’s dividend credentials, these are attractive as well. The shares currently support a dividend yield of 3.4%. The distribution is covered 2.2 times by earnings per share, and City analysts are predicting dividend growth of around 10% per annum for the foreseeable future. 

Set for the next 50 years 

I think Carnival has a long runway for future growth as the world’s population expands and demand for cruise holidays continues to increase. Cruising has been a popular leisure pastime for decades, and I don’t see any reason why this will change over the next few decades.

Carnival looks to be one of the best ways to buy into this theme, in my opinion. The company is well managed, highly profitable and is returning all excess cash to investors. There’s not much more you could ask for from a long-term investment.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Carnival. 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.