I’ve been calculating 10-year returns for some of our top FTSE 100 companies recently, and I knew British American Tobacco (LSE: BATS) (NYSE: BTI.US) was a winner — but I hadn’t realised just how well it had actually done!
The share price itself is easy enough to see — it’s soared from 801p a decade ago to 3,543p today, for a 4.4-fold rise. Had you invested £10,000 back then in British American Tobacco, you’d have snagged 1,248 shares, and today they’d be worth £44,232!
What recession?
If you look at the price chart over the 10-year period, you might notice a bit of a flat spell from 2008 to 2010, but it just looks like a brief pause on the mountainous ascent. That was the recession and banking crisis, the worst few economic years in most people’s memories, now relegated to a mere blip!
The price rise on its own is one of the best FTSE 100 returns of the decade, but your actual total would have been a fair bit more than that — because British American has been handing out some tasty dividends, too.
Over the past 10 years, the annual dividend yield has dipped slightly below 4% on a handful of occasions, but it exceeded 5% a couple of years, too. On average, it’s been one of the strongest and most stable dividends in the index, and would have added an extra £11,388 to your investment pot to take it to £55,620.
Savings account? No thanks
The dividend alone would have wiped the floor with any cash savings account, and you could have seen the £34,232 profit from the share price rise as a bonus!
But you could have done even better than that by reinvesting the cash instead of keeping and spending it — unless the average share price over the 10 years was actually higher than today, your coffers would have ended up fuller.
Of course, with the share price storming up, you couldn’t lose — and your final total would have reached £64,425.
We’ve already seen how dividends taken as cash would have earned you £11,388 — reinvesting them would have added an extra £8,804! And you’d be starting off your next decade with an extra 500 shares on top of your original 1,248.
The future?
How will the next ten years go for British American Tobacco?
With tobacco volumes falling (but profits rising as sales shift towards higher-margin brands), I can’t see the double-digit earnings growth that has characterized the past 10 years being repeated. But I can easily see another successful decade for investors, especially if those dividends keep rolling in.