2 FTSE 100 10-baggers that could fund your retirement

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Fireworks

Sometimes I think investors underestimate just how much money they can make from choosing winning stocks. These two lesser-known FTSE 100 companies have conquered the index over the past decade, especially for those who re-invested their dividends for growth, and should underpin many a comfortable retirement.

Right equipment

US-focused equipment rental firm Ashtead Group (LSE: AHT) has had a storming decade while escaping the attentions of private investors. In fact, it is the top performing stock on the entire FTSE 100 since the financial crisis, its share price soaring 957.3%, or an even more impressive 1,215.6% with dividends re-invested, according to new figures from investment platform AJ Bell.

That makes it a near-10 bagger and thrashes the average share price growth of just 13% across the FTSE 100 as a whole, or 64% with re-invested dividends. Ashtead has also rewarded long-term investors with its highly progressive dividend policy, delivering a compound annual growth rate of 26.5%, double the FTSE 100 average of 12.9%.

Sunbelt shines

Profits have been driven by the strong performance of its key US division Sunbelt, which contributes about two-thirds of earnings. These were boosted in sterling terms after Brexit, with rental income up 30% year-on-year, but this currency effect could reverse if the pound continues its revival. The surge in US sentiment after Donald Trump's surprise presidential victory also boosted Ashtead, as markets anticipate infrastructure investment and corporate tax cuts.

There is no guarantee that the £7.83bn company will continue to thrash all-comers: it isn't cheap trading at 19.08 times earnings, while the yield is currently just 1.43%. However, management is looking ahead with confidence and rightly so, with forecast earnings per share (EPS) of 22%, 16% and 9% over the next three years. The EPS growth trajectory has been inexorably slowing (it was 83% in 2013) suggesting it is unlikely to repeat past feats, but the future nevertheless remains promising. 

Stay focused

Software group Micro Focus International(LSE: MCRO) is the second-best FTSE 100 performer over the last 10 years, growing 957.1% or 1,348.9% with dividends re-invested, according to AJ Bell. Its dividend performance has been even more impressive than Ashtead's, with compound annual growth rate of 29.1%.

This is even more impressive given that the company was valued at just £500m five years ago. In 2016 it joined the FTSE 100 and now boasts a market cap of £5.72bn, boosted by last year's successful acquisition of the software arm of Hewlett Packard Enterprise.

New money from old kit

Berkshire-based Micro Focus, which specialises in breathing new life into ageing, retiring software, recently acquired US company Serena Software for $540m, as part of its strategy of making declining companies profitable again. With margins of 23.7% and return on capital employed of 136.2%, management knows what it is doing.

Recent double-digit EPS growth looks set to slow, with forecasts of 15%, 4% and 17% over the next three years, but that still looks healthy to me. Again, there is a price to pay for success, with a high-ish valuation of 20.65 times earnings, and low-ish yield of 1.95%. But given rapid share price and dividend growth, that looks like a price worth paying.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Micro Focus. 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.