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Now for today’s piece:

10 Of My Favorite Market-Beating Investments, Analyzed

Highlights

Overview

My investing strategy is heavily concentrated on dividend growth stocks.

Dividend growth stocks are often companies with durable moats, and they increase their dividends on some sort of schedule, often annually.

I like dividend growth stocks for a few reasons:

• They’re tax-efficient

• Your returns can compound at a mind-boggling pace

• They provide a growing passive income source that staves off inflation

• Your yield on cost grows over time

In addition, dividend growth stocks have a long history of outperforming the broader market.

For this article, I dug into 10 dividend growth stocks I personally hold and analyzed some metrics that are important to most dividend growth investors.

I’ve also provided my investing thesis for each company.

I hope this article provides a good starting point for further research and some insight into what makes a quality dividend growth stock in my view.

Enjoy!

#1: The Home Depot

Company Profile: The Home Depot is a home improvement retailer that sells construction materials, tools, and services.

My Investing Thesis: The Home Depot sells home improvement products that are always in demand.

The median age of a home in the U.S. is 39 which likely will increase the trend of repairing and remodeling homes.

The company appeals to DIY homeowners by providing an omnichannel shopping experience equipped with in-store products and helpful salespeople as well as a burgeoning online selection with augmented reality capability.

The Home Depot also caters to landlords who need to repair their rental homes and to contractors who do contracted jobs.

Housing is a resilient industry and The Home Depot provides exposure to this sector.

The company also benefits from a “nearly Amazon-proof” shopping experience, with most customers coming to the store to view products in person before purchasing.

10-Year Average Annual Return: 17.47%

10-Year Dividend Growth Rate: 19.98%

Dividend Payout Ratio: 46.70%

Dividend Yield: 2.95%

#2: United Healthcare

Company Profile: United Healthcare is a healthcare company that provides insurance and healthcare services to individuals and organizations.

My Investing Thesis: United Healthcare is the largest health insurer in the United States.

With its extensive customer base, diversified business segments, constant demand for its products, and growing Optum business segment, United Healthcare is poised to be one of the next decade’s best-performing stocks.

To top it off, it has rewarded investors handsomely with phenomenal dividend growth. (Full company breakdown here)

10-Year Average Annual Return: 24.32%

10-Year Dividend Growth Rate: 22.75%

Dividend Payout Ratio: 31.15%

Dividend Yield: 1.41%

#3: Deere & Co.

Company Profile: Deere & Co. is a manufacturer of agricultural, ag-tech, construction, and forestry machinery and equipment.

My Investing Thesis: Deere & Co., a manufacturer of heavy earthmoving and agricultural machinery, has benefited from diversified revenue streams and technological advancements and has shown its commitment to shareholders through dividends and buybacks.

Deere is poised to be the main player in the AgTech space and provides the machinery and data necessary for cultivating land and gathering crops. (Full company breakdown here)

10-Year Average Annual Return: 19.24%

10-Year Dividend Growth Rate: 9.56%

Dividend Payout Ratio: 16.73%

Dividend Yield: 1.25%

#4: Microsoft

Company Profile: Microsoft is a multinational technology company that develops, licenses, and sells computer software, consumer electronics, and personal computers.

My Investing Thesis: Microsoft has a long, established history as a tech giant.

The company provides software and devices widely used by businesses and a connected, sticky ecosystem of office suite products.

Microsoft also provides cloud computing solutions through its Azure division and is a major investor in Open AI.

Microsoft is also led by CEO Satya Nadella who I consider to be a visionary and opportunistic leader.

Lastly, Microsoft is engaged in acquiring the company Activision Blizzard which would bolster its gaming division.

10-Year Average Annual Return: 27.95%

10-Year Dividend Growth Rate: 11.70%

Dividend Payout Ratio: 28.89%

Dividend Yield: 0.97%

#5: Costco

Company Profile: Costco is a membership-based warehouse club that offers a wide range of products at discounted prices to its members.

My Investing Thesis: Costco is a world-renowned seller of consumer staples used by families around the globe.

With its worldwide presence, low-cost diversified product offerings, and stable demand for bulk discount goods, Costco is poised to benefit in the future as well as in these current inflationary times. (Full company breakdown here)

10-Year Average Annual Return: 18.69%

10-Year Dividend Growth Rate: 12.59%

Dividend Payout Ratio: 26.45%

Dividend Yield: 0.73%

#6: McDonald’s

Company Profile: McDonald's is a fast-food restaurant chain that serves burgers, fries, and other fast-food items.

My Investing Thesis: McDonald’s operates an extremely efficient franchising model where franchisees pay royalties and fees to the business.

This allows McDonald’s to collect predictable income from tenants and avoid many variable operating expenses.

McDonald’s also owns buildings in many high-traffic areas and offers lower-cost popular food options to many loyal customers.

10-Year Average Annual Return: 13.77%

10-Year Dividend Growth Rate: 7.03%

Dividend Payout Ratio: 69.46%

Dividend Yield: 2.19%

#7: Union Pacific

Company Profile: Union Pacific is a railroad transportation company that provides freight transportation services throughout the United States.

My Investing Thesis: In the U.S. where 40% of total shipments are sent by train, Union Pacific is primed to shine.

Union Pacific is one of the country’s largest railroad companies, and demand for train shipments is poised to keep growing.

Economists are forecasting increased demand for coal, e-commerce goods, and other bulk items for years to come, and its extensive rail network puts it miles ahead of the competition (literally). (Full company breakdown here)

10-Year Average Annual Return: 13.37%

10-Year Dividend Growth Rate: 14.96%

Dividend Payout Ratio: 46.35%

Dividend Yield: 2.61%

#8: Visa

Company Profile: Visa is a multinational financial services company that provides electronic payment solutions for individuals, businesses, and governments.

My Investing Thesis: Visa is a payment processing giant that exists in an oligopoly.

The company provides a payment infrastructure for credit cards and is accepted in over 200 countries.

The company acts as a middleman between financial institutions and merchants.

Visa’s business model is to collect fees from its clients for network usage, clearing, settling, advising, licensing, and data management.

Visa’s high-margin and scalable business should increase in profitability as more people use credit cards more frequently around the world.

10-Year Average Annual Return: 19.05%

10-Year Dividend Growth Rate: 19.62%

Dividend Payout Ratio: 23.08%

Dividend Yield: 0.81%

#9: BlackRock

Company Profile: BlackRock is an investment management company that provides investment and risk management services to institutional and individual investors.

My Investing Thesis: BlackRock is the world’s largest asset manager.

It holds a diversified portfolio of assets and provides investment products for institutional and retail investors.

The company makes revenue from fees and advising and should benefit from this business model as asset prices appreciate in value.

BlackRock has historically rewarded shareholders with dividends and share repurchases and should continue to do so in the future.

BlackRock's diversified asset holdings, vast client base, simple fee-based structure, product offerings, and room for global expansion should fuel its future growth. (Full company breakdown analysis)

10-Year Average Annual Return: 12.62%

10-Year Dividend Growth Rate: 12.26%

Dividend Payout Ratio: 57.85%

Dividend Yield: 3.04%

#10: Starbucks

Company Profile: Starbucks is a coffeehouse chain that sells coffee, tea, and food items in a casual setting.

My Investing Thesis: Starbucks has a worldwide presence and a very loyal customer base.

The company offers various food and drinks to customers including coffee which is very habit-forming.

Starbucks caters to a higher-income demographic and has pricing power.

They also boast a loyal rewards program that gives the business a formidable cash float.

Expansion and brand loyalty should fuel the company’s future growth. (Full company breakdown analysis)

10-Year Average Annual Return: 15.23%

10-Year Dividend Growth Rate: 18.30%

Dividend Payout Ratio: 71.08%

Dividend Yield: 2.11%

Final Thoughts

I invest in dividend growth stocks because:

• They’re tax-efficient

• My returns can compound at a mind-boggling pace

• They provide a growing passive income source that staves off inflation

• My yield on cost grows over time

My ultimate goal is for my dividends income to replace my active income so I can become financially independent, retire early, and have more time to pursue my interests.

While these 10 stocks have outperformed the market over the last decade, past performance doesn’t equal future performance.

A successful company needs to keep innovating if it’s going to remain a market-beating company.

I will continue to monitor these companies’ performance against my thesis and hold them as long as they meet my expectations and continue to grow their dividend.

I hope this article provides a good starting point for further researching.

Happy Dividend Investing!

Sincerely,

Dr. Dividend “Growth Investor”

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New Episode Of The Dose of Dividends Podcast!

This week I sat down with Bristol, a 25-year-old investor working in the semiconductor industry with a PADI of over $10,000!

You may know him as @bristoldividend on Twitter.

Bristol and I talk about:

• What makes an A+ stock?

• Does Zoom have a moat?

• The difference between share buybacks and dividends (and what we love about each)

• 2 companies that have CRUSHED it for him (over 100% gains!)

• One company that hasn’t quite lived up to our expectations

• Why we wouldn’t start our own ETF

• Our approach to valuation

• What it's like working in the semiconductor industry

• A spicy hot take 👀

Tickers Discussed:

JPM, COST, AAPL, NUE, ASML, VFC, ZM, T, PPL, MMM, VZ, SBUX, UNP, NVDA, AMD

You can listen to the new episode here.

Please let me know what you think of this episode!

If you love it, tell a friend and give it 5 stars!

Links And Memes

Here are some of the best things I read this week:

• An insanely good breakdown of the business of Louis Vuitton Moët Hennessy – even in a recession people want their Louis bags 💼 (Punch Card Investor)

• Things that are ignored by the media, but will probably be studied by historians – I’m curious to hear your take on things that aren’t getting the media recognition that they should (George Mack)

• The crazy story (and genius) behind the movie Jaws – If you ever visit Martha’s Vineyard, you can see the bridge from the movie (Billy Oppenheimer)

• Sick breakdown on the making of the movie The Matrix – One of my favorite movies, their stunts and effects still live up to today’s standards IMO (All The Right Movies)

And as always, some memes:

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