The best investment of the past 35 years? Sadly, it was cigarettes | Money

This month the FTSE 100 is 35 years old. When it launched in 1984 it was a true barometer of UK commercial and industrial talent, but now only 30 of the original names remain intact. Courtaulds, which in the 1970s was the world’s largest textile manufacturer, was an early casualty. Gone, too, are ICI, Plessey, Ferranti and Pilkington.

Other countries have maintained industrial giants and developed technological powerhouses. The DAX index in Germany contains Bayer, BASF, Continental, Siemens, ThyssenKrupp and Volkswagen. The S&P 500 in the US includes Microsoft, Apple, Amazon and Boeing.

What has been the UK’s most successful stock market company, in the country that was the birthplace of the industrial revolution? Step forward British American Tobacco. Its product kills customers, but hey, they have been great for investment portfolios in our dividend-driven financialised economy.

Over the past year BAT has actually been a poor performer – knocked by commendable attempts by regulators in the US to ban menthol cigarettes, which make up around a quarter of BAT’s profits.

BAT’s shares have tumbled from a high of £55 in 2017 to about £24, but even after halving they have made an astonishing gain since 1984. An analysis by brokers AJ Bell reveals that if you bought £100 worth of BAT shares in 1984 and reinvested the dividends, by the beginning of 2019 they were worth £33,123.

Nothing else comes close. Second-best performer Unilever has turned £1,000 into £13,215, while Whitbread has made £12,195.

The worst performer? Barring companies that went bankrupt (such as Ferranti), the wooden spoon goes to Royal Bank of Scotland. In 1984 it entered the FTSE 100 at a price of 216p. Its price 35 years later? 216p.

How did big tobacco do so well? The threat of catastrophic litigation payouts in the US went away after a settlement in the mid-1990s with the US authorities. Cashflows were magnificent, as nobody new entered the market, while territories such as Russia, Brazil, Nigeria and Indonesia have proved highly profitable. In 2017 BAT made £6.5bn profits on turnover of £20.3bn, and in 2018 became one of the top-five dividend payers in the UK stock market.

You have to go down to 16th in the list of top stocks since 1984 to find a manufacturer that has done well. It’s BAE Systems, maker of military hardware and warships. Making stuff that can kill people seems, sadly, to be what Britain’s rather good at. Do remember that when you are buying a UK index tracker, this is what you are investing in.

What else do we learn from the data? According to AJ Bell, the standout performers are firms that had long spells of consecutive increases in their annual dividend, such as ABF, Johnson Matthey, Legal & General and Whitbread.

And the next 35 years? Probably just 10 of the 30 names from 1984 will still be in the index. And maybe by then cigarettes will be history too.

p.collinson@theguardian.com

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