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Yahoo
20 hours ago
- Business
- Yahoo
Here's the average return from the FTSE 100 over the last 5 years
During the last five years, the total return from the FTSE 100 – including price appreciation and dividends – has been 83.68%. That's the equivalent of 12.93% a year, and far better than anyone could hope to achieve in a savings account. And while part of the return is the result of a post-pandemic bounceback, there's a lot more to it than this. What the FTSE 100 does well In one sense, there's no magic to the FTSE 100 performance. The largest UK businesses that meet the qualifying requirements automatically become part of the index. That means it isn't a matter of judgement when one stock replaces another. It's just to do with its market value and how that compares to other companies. This might sound like a weakness – it means there's no scope to be greedy when others are fearful by buying stocks that are out of fashion. Actually however, it's a big advantage. Sticking to a mechanical process protects the index from making the kind of mistakes a lot of investors make. One of the biggest of these is buying and selling too much. An example Diploma (LSE:DPLM) joined the index in September 2023. At the time, it traded at a price of around £31.26 and made 76p in (statutory) earnings per share. That implies a price-to-earnings (P/E) ratio of around 41. It reflects some optimistic growth assumptions and might reasonably have put some investors off buying the stock. Despite this, investors who either bought shares in Diploma or held on to their existing investments have done very well. The stock's up 75%, not including dividends. The best thing to do with the stock since it joined the FTSE 100 has been to hold on to it. And that's what index investors have done, without having to think about it. Selling It's not however, what I did with my Diploma shares. I sold my investment when the price hit £28.18 a share, back in May 2023. At the time, the stock traded at a P/E ratio around 37. So it was going to take a few years before the firm made enough cash to generate a good return on my investment. There were also risks to consider. Acquisitions were – and still are – a big part of Diploma's strategy, so what if the company overpaid to buy another business? The firm's strategy has proved to be a winner and the stock's up 93% since then as a result. And the company's management team deserves a lot of the credit. Investing lessons I think there are better stocks to consider buying right now than Diploma. But investors who own the stock should be very careful before selling. The FTSE 100's returns over the last five years have been impressive. And one reason is it has held on to its winners like Diploma. A mechanical process for buying and selling means the index hasn't moved off the stock even when it looked expensive and risky. And that's been a big advantage. In terms of my own investing, this is something I'm looking to get better at. At times in the past, I've definitely missed some big returns by being too quick to sell. The post Here's the average return from the FTSE 100 over the last 5 years appeared first on The Motley Fool UK. More reading 5 Stocks For Trying To Build Wealth After 50 One Top Growth Stock from the Motley Fool Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Diploma Plc. 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. Motley Fool UK 2025
Forbes
6 days ago
- Business
- Forbes
This ‘Buffett Favorite' Dividend Is An Incredible CEF Bargain
When it comes to a closed-end fund (CEF), many investors are always focused on one thing: the dividend. It makes sense: CEFs pay 8.5% yields, on average, according to data from my CEF Insider service. But sometimes it pays to look beyond those big payouts, because by doing so, you could find a CEF with a track record so strong that its total return (dividends and gains combined) beats that of a CEF with a high yield. I don't know about you, but I'm willing to take more of my return in the form of price gains if it means, say, doubling my money in five years! This CEF Winner Is Hiding Behind Its 'Low' Payout That's been the case with the SRH Total Return Fund (STEW), whose dividend—at 3.8%—is pretty, well, meh, for a CEF. As a result, it's often overlooked, which is what's happening now. We can see that in the fund's discount to net asset value (NAV, or the value of its underlying portfolio), which is just under 20% today (more on this shortly). That ridiculous discount is an insult to this proven fund, which has doubled an investor's money, with dividends reinvested, in the last half-decade. That's a fantastic return by any measure. It even beat the S&P 500, which is up around 103% since then. The funny thing is, the strategy behind this money-making fund is simple, which is why its bargain valuation is so surprising. Inspired by Warren Buffett, STEW uses a value-investing approach that makes the fund less volatile than the broader market while helping it rise in value over the long haul. Its largest investment is in Berkshire Hathaway (BRK.A, BRK.B), which is about 45% of the fund's assets. Additionally, STEW looks for valuable underpriced stocks, which is why it also holds JPMorgan Chase & Co. (JPM), pipeline operator Enterprise Products Partners (EPD), Microsoft (MSFT) and other high-quality firms with long histories of returning cash to shareholders through dividends and stock buybacks. This is all good stuff, but now let me show you the best part: that bargain valuation I mentioned a second ago. This is where a big difference between CEFs and ETFs comes in: ETFs can issue shares as necessary, so they don't trade at discounts (or at least significant ones). But STEW, as a CEF, has a fixed number of shares (hence the 'closed' in the term 'closed-end fund'). As a result, a CEF's shares can trade up or down depending on market demand, in addition to their movements on the value of the fund's assets. That, in turn, means CEFs can sometimes trade well below NAV. And STEW's discount, as I mentioned a second ago, is truly massive: just under 20%! Note that this markdown was even wider in recent months. In fact, STEW's discount has slowly grown larger over the last five years despite the fact that the fund beat the market. This inefficiency can't last, which is why STEW's discount suddenly shrank in recent weeks. Its discount is likely to shrink further as more investors catch on. All of this might sound familiar if you've been reading my articles for a while, because in a March 31, 2025, piece, I pointed out that STEW's massive (then 23.1%) discount was unlikely to last. It has shrunk a bit since then, and I see it shrinking more. Now, let me wheel back to the dividend part of the picture here. To be sure, that 3.8% payout is, as mentioned, on the small side for a CEF. But it's also masking something else, besides STEW's strong total return: dividend growth. That too has been strong, with the payout soaring 62% in the last five years. And lately, STEW's payout growth has been accelerating: It's just another reason why with CEFs (or any income investment, really), it pays to look beyond the yield. STEW, with its discount, performance history and growing payout, is a perfect example of that. Michael Foster is the Lead Research Analyst for Contrarian Outlook. For more great income ideas, click here for our latest report 'Indestructible Income: 5 Bargain Funds with Steady 10% Dividends.' Disclosure: none
