The Motley Fool

Forget tonight’s £74m EuroMillions jackpot! I’d buy this FTSE 100 stock

Image source: Getty Images

Big lottery jackpots tempt millions of people a week to part with their cash in the hope of a bumper payday. However, with the chance of winning a life-changing sum being microscopically small, I believe regularly investing in FTSE 100 stocks is a far better way to aim to get rich.

A share of £366m

One company I’d be happy to invest in today is Associated British Foods (LSE: ABF), the owner of Primark, as well as several food businesses. The group released its latest annual results this morning and reported a profit of £1.3bn. When it pays its final dividend on 10 January, it will have distributed £366m to shareholders this financial year, 3% more than last year.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Forget tonight’s £74m EuroMillions jackpot! I’d rather put my money in ABF and have a share of that £366m. And that’s just one year. If the company continues increasing its annual profits and dividends, it’ll hand me more and more cash each year. Furthermore, if I regularly buy more shares and reinvest my dividends, I’ll own a bigger and bigger part of the business, meaning more of those annual millions paid to shareholders will come my way.

Rising profits and dividends would also see the business become more valuable. If so, other investors would be willing to pay higher prices for owning a share of it, meaning the value of my shares would increase.

Let me tell you now about ABF’s results today, and why I think now is a great time to invest in the company for the long term.

Well-positioned

Primark is ABF’s biggest business, accounting for half of the group’s revenue. This increased 4%, with operating profit rising 8% to £913m. The group’s grocery business (around 20% of revenue), which includes brands such as TwiningsDorset Cereals and Ryvita, also performed strongly. Revenue increased 2% and operating profit 10% to £380m.

Profits at the group’s three smaller divisions, sugar, ingredients and agriculture (each around 10% of revenue), were lower than last year. Sugar profits were hit particularly hard — down to £26m from £123m — in a year impacted by a radical change in the European sugar market.

However, the performance of Primark and grocery more than offset the profit weakness in the other divisions. Group underlying earnings per share (EPS) increased 2% on 2% higher revenue. Management described it as a “resilient performance,” and looking ahead, said ABF is “well-positioned for further progress, with the continued expansion of Primark, a material improvement in our sugar profit and strong profit growth in grocery.”

Discount shares

ABF’s shares are up over 4% on the day, as I’m writing, and top the FTSE 100 risers board. Nevertheless, at 2,350p they remain well below their all-time high of over 3,500p. A valuation of 17.1 times today’s reported EPS and running dividend yield of 2% is generous by historical standards, and one big reason why I think now is a great time to buy the shares.

Another reason is a recent assessment by analysts at Berenberg. Comparing ABF’s smaller businesses with the valuations of their peers, Berenberg concluded that Primark is at a 44% discount to Next compared with its usual historical premium of 19%. This “despite its superior business model … and significant international growth opportunity.”

All told, I’d much rather buy ABF’s discount shares, and long-term profit and dividend growth prospects, than a ticket in tonight’s EuroMillions lottery!

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Associated British Foods. 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.