Ive 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 hadnt realised just how well it had actually done!
The share price itself is easy enough to see its 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, youd have snagged 1,248 shares, and today theyd be worth 44,232!
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 peoples 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, its 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 couldnt lose and your final total would have reached 64,425.
Weve already seen how dividends taken as cash would have earned you 11,388 reinvesting them would have added an extra 8,804! And youd be starting off your next decade with an extra 500 shares on top of your original 1,248.
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 cant 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.
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.