Current investors of British American Tobacco (LSE: BATS) do not need to be told twice just how rewarding owning the company's share can be. Since the start of 1999, shares have risen over 800% in value yet still offer a very attractive 3.12% yielding dividend.
And I don't think the company or its shares are anywhere close to being done growing. The key is consolidation in the tobacco industry and exposure to emerging markets.
BATS has been a mover and shaker in the process of industry consolidation and recently struck a major deal with Reynolds American to buy the remaining 57.8% stake it doesn't already own for $49.4bn. This deal would make BATS the world's biggest public tobacco company by sales and also increase its exposure to the world's most profitable cigarette market.
Even without this acquisition BATS is still growing faster than many public health officials would like. For the first nine months of 2016 the company's revenue grew 6.2% on an organic constant currency basis year-on-year and by an even greater 8.1% on a reported basis. This is down to both a 2.2% rise in cigarette volumes and the company's enviable pricing power, which comes from smokers' famous devotion to a single brand and relatively inelastic demand.
Future growth potential is cemented by the fact that roughly 60% of BATS' cigarette sales by volume will still come from emerging markets in Asia, Africa and South America after the Reynolds acquisition. This is a very attractive position to be in as growing disposable incomes in these various countries mean the company can charge more per pack, allowing margins to approach those on offer in countries such as America.
While BATS shares aren't cheap at 19.9 times forward earnings I reckon investors wanting to retire early may find this a reasonable price for a highly defensive, high dividend-paying company with considerable growth potential.
A healthier option on the menu
Poor fourth quarter results from India and Brazil dampened enthusiasm for investor darling Unilever (LSE: ULVR) but I believe the company's long-term growth potential is still very much something to write home about.
The Anglo-Dutch consumer goods giant now brings in over half of its sales from emerging markets and despite the short term volatility seen in Brazil and India, these regions are still hugely attractive long-term opportunities. For 2016 as a whole, developing market underlying revenue grew by 6.5% year-on-year, driven by a 1.1% increase in volume shipped and, more importantly, a 5.4% rise in prices.
This shows that Unilever's vaunted ability to charge high prices for its name-brand goods works just as well in Lima and Beijing as it does in London. Very good pricing power carried over to the company's profit as underlying operating margins increased 50 basis points year-on-year to 15.3%.
If Unilever can continue to increase margins and grow sales by a respectable and achievable 3%-4% per annum, I reckon investors looking for a stock to pay for an early retirement could do much worse.
Ian Pierce has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.