Stocks that meet the golden rule of quadrupling in 20 years

Where do I want to be in 10 years? How do I envision my future, my family or my job in a decade? These are questions that every citizen has asked himself at some time. It seeks to set a goal and do whatever it takes to achieve it. The same thing happens in the investment world. Beyond the short-term noise, as a general rule the investor seeks to create a long-term portfolio of securities that must be required, at least, to 7% annualized.

The most classical financial theory speaks of this magic number as an absolute return for investors in equities over a long period of time, and the S&P 500 corroborates this. In the last 20 years it offers an annual return of 7.8%. From the Economist We have carried out a somewhat more demanding exercise and have selected only those companies that have managed to double their investment in ten years and quadruple it in the last 20. The calculation has also taken into account shareholder remuneration and includes the reinvestment of the dividends collected. The result? 26 firms on the Spanish stock market achieve this goal, of which 14 currently belong to the Ibex 35 and the rest are small securities, traditionally jewels in the portfolios of national value managers.

How do they manage to comply with the 7% annualized rule? In your favor plays what is known in finance as compound interest, which is a concept as simple as it is used among investors. What does it consist of? If an investor bought 100 euros in Telefónica shares in year 1 and receives a dividend of 10 euros that he decides not to collect and to reinvest, its initial nominal will be 110 euros in year 2 and will double up to 200 euros when the eleventh year starts. This implies that if the stock appreciates 7% annually, the difference between reinvesting the dividend or not doing so is getting bigger and bigger. Whoever collects payments in cash will have doubled their investment in a decade, with a revaluation of 104%. Whoever reinvests them will obtain a revaluation of 204% on the initial investment, up to 304 euros in the tenth year (in addition to the tax savings it entails).

This is what also happens with the Ibex with dividends versus the traditional selective. The former is up 6.5% from hitting all-time highs again (which found at 29,439 points), while the Ibex 35 is almost 80% up from returning to top 16,000 points in the pre-Lehman era.

There are nine companies that exceed a revaluation of 1,000% in the last two decades, including reinvestment of dividends: this is CIE Automotive (the best of them all, with a revaluation of 3,209%), followed by Vidrala (2,827%), Prim (2,527%), Grenergy Renovables (2,241%) ), Viscofan (1,913%), CAF (1,719%), Red Eléctrica (1,427%), Catalana Occidente (1,073%) and Airbus (1,013%), according to Bloomberg. Inditex and Grifols are on the verge of being part of this group with 997% and 976%, respectively.

CIE Automotive was one of those value companies that emerged in the portfolio of fund managers and that, once on the Ibex, has ceded its seat to its younger brother, Global Dominion, which since its IPO in 2016 has added 80 % revaluation. If instead of reinvesting the dividends, the investor had chosen to collect them, equally, would achieve huge profits of 2,667%. CIE is listed in the zone of highs of 2018, thanks to the rally of 15% that its shares have marked since it presented results in October.

Vidrala is another example of creating value for the shareholder. The Basque firm, world leader in the manufacture of glass containers, is one of the most bullish in recent years with increases of 3,000% in the last 20 years without taking dividends into account. It has a market value that exceeds 2,500 million euros, more than four of the current members of the Ibex 35 (Solaria, Pharma Mar, Meliá and Indra), but despite complying by capitalization, it remains outside the index due to its lower liquidity.

Less well known is the stock market history of Grupo Prim, although not for that reason it is less profitable. The company, which develops, manufactures and distributes a wide range of orthopedic products, reached historical highs last August and shows profits including its payments of 2,527% in two decades.

It is followed by energy company Grenergy, despite the fact that its history on the trading floor is much shorter than the companies mentioned above. The renewables firm led by Andrés Ruiz de Andrés debuted on the Alternative Stock Market (MAB, current BME Growth) in 2015 and made the leap to Continuous in 2019, and provides a return of 2,241% ?? the company does not pay dividends at the moment ??.

Viscofan is another paradigmatic sample that throughout its 45 years of history has combined organic and inorganic growth to become the undisputed leader in packaging for meat products in the world. Proof of this is that in a year as complicated as 2020 it was one of the best behaved due to its defensive nature. In these two decades the firm that presides Domingo Ampuero provides 1.913%.

CAF follows with a 1.719%, which in this period of time has grown in the heat of a market shared by a few manufacturers of rolling stock (railways, buses, etc.) worldwide.

The case of Red Eléctrica, with a return of 1,427% Since 2001 it is also paradigmatic taking into account the visibility that the company offers on its committed remuneration policy for the coming years: 1 gross euro per title and year until 2022, which at current prices rents 8.5%, the third highest dividend yield on the Spanish stock market after Atresmedia and Metrovacesa. Without including its payments, the utility has appreciated by about 1,700% since 2001. However, from 2023 to 2025 it will reduce its payment to 0.8 euros, lowering its return to 4.5%.

How much do the ‘blue chips’ offer

Inditex is the firm that exemplifies the creation of value par excellence. It is the largest company by capitalization of the Ibex. In the 20 years of trading (it was released in 2001) it has reported profits to its shareholders of almost 1,000%, with reinvested dividends. Its stock was one step away from breaking all-time highs until Friday’s fall, which reached 32.78 euros in 2017.

The Galician textile, everything points to this, is going to emerge from the reinforced pandemic insofar as its online sales branch has managed to remain in time despite the end of the confinements. At the end of the first half of the year (from March to August) the revenues of its brands through web pages grew by 36% compared to the same period of 2020 when Spain, its first market, was literally closed for a whole quarter ??. The company has advanced one year its goal of online sales to exceed 25% of the total by the end of 2021. Good stock management and the integration of the online and physical channel will lead Inditex to return to EBIT margins of 17% already this year, and will exceed 18% in 2022, and it is something that has not happened since 2013.

Far below Inditex but without leaving the Ibex, their profitability tripled with dividends Mapfre and Naturgy, with 281% and 221%, respectively, in the last 20 years and doubled by Bankinter and Acerinox, with 169% in the case from the orange entity and 140% from the steel company. They are followed by Repsol, which offers 66%.

In the red is the big bank of the Ibex. BBVA, Santander and CaixaBank fell between 10% and 16% in this period. Much greater is the decline of Telefónica and ArcelorMittal. The teleco led by Álvarez-Pallete shows losses of 35% despite considering that dividends are reinvested. As for the Luxembourg steel company, the decline is practically the same with and without its payments, and has been around 40% since 2006, the year of its merger.