One of the huge attractions of owning shares in a great business is that it allows investors in them to benefit from the power of compound interest – where profits are continually reinvested to produce higher future profits.
Shares in bakery and food-to-go specialist Greggs (GRG) are a great example of this. Its compelling business model and appeal for value-conscious consumers has seen it deliver stellar growth in its profits over the years. This has resulted in total returns to shareholders of 480 per cent over the past decade compared with 90 per cent for the FTSE All-Share index. Anyone who was fortunate to buy the shares at the flotation price of 13.5p (adjusted for share splits) back in 1984 and hold on to them has seen them rise to 2,860p while receiving a dividend return on their investment of 460 per cent.
As businesses become larger, it becomes harder to keep the process of compound interest going. However, there are strong grounds for thinking that Greggs can keep on delivering here in the years ahead.