Investing does not need to be hard. Often, the more simple you keep it, the greater the returns you will make. Two of the greatest investors of recent time, Warren Buffet and Peter Lynch have been advocates of investing in products you know, use and love and this has led them to produce outsized returns over the years.
Businesses with strong brands and a loyal customer base are highly profitable are churn out huge profits year after year. Just look at companies like Coke, Pepsi, Hersheys, Nestle and Kellogs to name a few. If you invested £1000 in each of these companies in 1991, your money would have a grown to £78214 today, a 1464% increase! These companies are by no means fashionable, cool or cutting edge like Facebook, Tesla or Netflix but these so called ‘boring’ stocks are consistent deliverers of high performance due to customers liking and sticking to the products these company’s make.
One company that has come under my radar for making tasty products and having a loyal customer following is Britvic. Investors in Britvic can take comfort knowing that the company manufactures, distributes and licences products which are supported by consumers insatiable love of them – Pepsi, Tango, Mountain Dew, Lipton Ice Tea, Robinsons (Fruit Shoots!), 7up, J2O, Drench and Teisseire to name a few.
These products are enjoyed by people across the nation and will continue to be enjoyed 30 years from now and, in an uncertain world, that is enough to mean that a company like Britvic which owns and licenses these brands is likely to be a terrific investment over time.
In the wake of brexit, UK facing companies and the consumer cyclical sector have been the hardest hit. A consumer cyclical stock is one whose performance is driven largely by the health of the wider economy. This is because they are products over which a consumer has a choice of whether to buy or not, and so would probably buy less of in times of economic uncertainty.
Britivc on the other hand belongs to the consumer staple category as the sale of their products are not too dependent on the wider economy. They should have a relatively stable operating performance no matter what the macroeconomic outlook is. People are not going to stop drinking the products Britvic makes, such as sift drinks and juices, just because there is a recession on the horizon. In my view, the sell-off in Britivic shares as a result of the EU referendum has been overdone and this has created value in the company’s stock price
I bought 186 shares in Britvic at a price of 600p a share. This gives a P/E ratio of just 13. This is fantastic for a defensive company. The yield of 3.8% the shares currently offer is also very healthy. For my 186 shares I am expecting to receive £43 in dividend income over the next 12 month.
The best part about having an ownership stake in Britvic is that the company has been increasing its dividend at a decent clip over the past few years. It it continues to do so, I am expecting to receive £47 in 2017, £50 in 2018, £54 in 2019, £59 in 2021 and £64 in 2022. Just by holding the stock for five years, the company will pay me about £274 in cold hard cash. Or in other words, over 20% of my initial purchase price. Isn’t owning stocks in wonderful business great !!
As Peter Lynch once said, one of the most profitable ways to invest is to invest in what you know. In an ever uncertain world, the great taste offered by branded products is the one constant – consumers are drawn and loyal to tasty products. There is a high probability that the same products that are enjoyed today will be enjoyed 30 years down the line. From an investors point of view, knowing this makes valuing the company’s business engine and its cash flows all the much easier. This is why I am an advocate for investing in companies that make wonderful products. And if investing in wonderful companies is good enough for Warren Buffet and Peter Lynch, then it sure as hell is good enough for me.