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Forget a Cash ISA! I’d target £1m with this FTSE 100 dividend growth stock

I’m sure you’ve heard it all before. How the 1.4% interest rate on best-buy Cash ISAs isn’t even enough to keep pace with inflation.

You’re sensible enough to know that you can’t build retirement savings if the value of your money is falling each year. You’re certainly unlikely to make £1m by saving in this way.

The difficult part is knowing where to put your money instead. My top choice is the stock market. Over the last century or so, UK stocks have delivered an average annual return of about 8%.

One approach I use to pick potential long-term winners is to focus on companies which have a big share of the market in which they operate.

These firms are probably already doing things right. And having a large customer base and good economies of scale should help them to deal with an uncertain future.

In this article I’ll highlight two companies I think could be profitable long-term investments.

Pick #1: supermarket sweep

One of the top choices on my list for a long-term holding is the UK’s largest supermarket, Tesco (LSE: TSCO). This may not seem an obvious choice for growth. Indeed, the Tesco share price is still 50% lower than it was in November 2007, when markets peaked before the financial crisis.

However, Tesco is a very different beast today. Since chief executive Dave Lewis took charge in 2014, the group has been refocused on its core UK grocery business, cut debt and improved its financial performance.

The acquisition of wholesale group Bookers has boosted growth and profit margins — Booker sales rose by 12.4% during the first quarter of this year. It’s also expanded the group’s reach into the convenience store market, by adding the Londis and Budgens brands.

Tesco’s operating profit rose by 17% to £2,153m last year, while the group’s operating profit margin rose to 3.5%. This made it the most profitable of the UK’s listed supermarkets.

The shares still look decent value to me as a long-term dividend growth pick. Although this year’s forecast dividend yield of 3.4% is below the FTSE 100 average, analysts expect strong dividend growth to continue as Mr Lewis rebuilds the shareholder payout. I remain a buyer.

Pick #2: a Marmite stock

I have to admit to being a big fan of pub chain J D Wetherspoon (LSE: JDW) and a regular customer. Free refills on coffee, reliable Wi-Fi and good value food and drink in a comfortable setting is an offer that works for me.

I’ve never been a shareholder, as this FTSE 250 stock has always seemed a bit too expensive to me. But so far, I’ve been proved wrong. The share price has risen by 95% over the last five years, three times the 28% gain delivered by the FTSE 250 over the same period.

Today’s full-year results suggest that it remains on track but is suffering from higher costs. Sales rose by 7.4% to £1,818m last year, but adjusted per-tax profit was 4.5% lower, at £102.5m. The group’s operating margin fell from 7.8% to 7.3%.

That’s still a respectable margin for this sector, so I wouldn’t be too concerned. However, the group’s shares have risen by almost 50% this year, leaving the stock trading on 20 times forecast earnings. With profit growth slowing, there’s not enough value here for me. I’d view this as a stock to buy during the next market dip.

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Roland Head owns shares of Tesco. The Motley Fool UK has recommended Tesco. 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.