Back in 2015, economists at the Wriglesworth Consultancy compiled a report for lender Landbay on the returns investors have received from buy-to-let investing over the previous two decades.
According to the report, between 1996 and 2015 buy-to-let investors earned £5,071 for every £1,000 invested without any borrowing. With borrowing — a 75% loan-to-value mortgage to help finance the investment — every £1,000 generated returns of £14,987.
These returns are highly impressive. The report goes on to note that £1,000 invested in equities over the same period grew to be worth just £3,119 — a return of only 210%. But this is only an average figure. Several companies have managed to smash this return and leave buy-to-let trailing in the dust.
Today, I’m looking at just one of these stock market champions.
Over the past decade, shares in consumer goods giant Unilever (LSE: ULVR) have produced a total return (including dividends) for investors of around 13.6%, outperforming the rest of the UK market by approximately 4.8% a year. These returns have been slightly above the long term average, but not by much.
According to my figures, over the past two decades shares in Unilever have yielded a total annual return for investors of around 10%. This implies that every £1,000 invested in the company two decades ago is now worth £7,039, 39% higher than the return from buy-to-let investing without borrowing.
I’m using the ex-borrowing returns here because I think this is a better representation of overall gains. The returns from any asset look amazing in a bull market if you borrow money to increase your position, but the strategy can unravel quickly if the market turns against you.
And I think Unilever will continue to outperform buy-to-let property over the next two decades.
There are several reasons why I believe Unilever will continue to outperform buy-to-let.
First of all, the group has a global presence and is growing rapidly in emerging markets where populations and incomes are multiplying, which should continue to drive demand for the company’s products. If Brexit causes a recession in the UK, this international diversification should ensure that Unilever continues to grow no matter what happens at home.
Second, the company’s product mix is highly defensive. It owns some of the most recognisable and valuable consumer brands in the world, which gives it a certain level of immunity from economic cycles.
Third, unlike buy-to-let, the company is not facing the wrath of politicians who are clamping down on the buy-to-let industry, removing favourable tax breaks, and introducing regulation to stop bad landlords and make property more accessible for tenants.
And finally, unlike buy-to-let, with Unilever you don’t need to do any work. All you need to do is sit back, let management run the business, and pick up a regular dividend cheque, which currently gives you a yield of 3.4% on your money.
The bottom line
All in all, an investment in Unilever has outperformed buy-to-let over the past two decades, and it looks as if this trend will continue for the foreseeable future.
Do you want to retire early and give up the rat race to enjoy the rest of your life? Of course you do, and to help you accomplish this goal, the Motley Fool has put together this free report titled "The Foolish Guide To Financial Independence", which is packed full of wealth-creating tips as well as ideas for your money.
The report is entirely free and available for download today, so if you're interested in exiting the rat race and achieving financial independence, click here to download the report. What have you got to lose?
Rupert Hargreaves owns shares in Unilever. The Motley Fool UK owns shares of and has recommended Unilever. 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.