This week I read a very good article from my fellow Seeking Alpha author, Dividend Sensei. He wrote about the biggest bubble in history. This made me think about the overall market. Are we about to crash or is there another two to three years of bullish market coming up? I came to the same conclusion as Dividend Sensei: If you are in it for the long term, market crashes don't matter. 20 years from now, your portfolio will be in better shape than today if you remain invested and keep strong dividend growth stocks.
Speaking of which, we all have a few companies we wished we had bought 10, 15, 20 years ago. I've recently confessed I should have kept one of my winners from my early days of investing. This stock shows a four-digit return over the past 14 years. In order to avoid more of these regrets, I now follow a very detailed investment process and I keep my winners as long as possible.
While we will all agree that we should keep winners in our portfolios, what if you haven't bought any of them yet? What if you are currently sitting on the sideline and you wait and wait and wait. What if you keep waiting and miss the opportunity? What if you wake up in 20 years and realize you never bought those stocks simply because they were "too expensive" back then. The market is expensive today, but I'm convinced these four companies will definitely reward their shareholders for the next 20 years.
Disney (DIS) for the future of entertainment
Disney was once the King of Content. Now, with the Fox (FOX) acquisition, Disney has become the Great Khan, the Chinese Emperor, the Julius Caesar of content. The $168 billion market cap titan of entertainment is about to enter a decade of strong growth.
First, Disney is in control of the largest annuity of all time with its content universe. Each year, the company will own the box office with at least half of the top 10 biggest movie. This division will generate billions and billions in revenue and will never cease to entertain us.
Second, Disney works its magic to generate multiple streams of income from each movie. All of the Star Wars, Marvel Superheroes and Pixar movies and characters are transformed in theme park sections, t-shirts, action figures, video games, etc.
Third, Disney will generate a decade of growth with its streaming service. Some doubt that DIS would succeed by pulling away their Star Wars movies from Netflix (NFLX) and start their own service. Who would pay to see 7 movies and a few episodes of "Clone Wars"? How about Fox Studios, Marvel Universe, ABC studios, Star Wars, Disney Channel and Pixar movies all together? Now we have some serious content! There is no doubt millions of family will pay $10 per month to access those. In 20 years, everybody will have their Disney streaming app on their Apple TV.
Starbucks (SBUX) for China's potential
Starbucks have been disappointing the market by missing estimates several times over the past quarters. But can you really discard a company showing 60% (10% CAGR) revenue growth and 100% (15% CAGR) EPS growth over the past five years?
First, Starbucks' incredible membership programs will push sales higher. At the end of 2017, SBUX posted growth of 11% year over year to 13.3 million active members in the U.S. This represents 36% of its U.S. sales. SBUX membership program doesn't only encourage repetitive spending from its members, but also provides management with A-class marketing information. The company is then able to modify its menu, its store size and design according to what people want.
Second, Starbucks shows strong momentum in China. Chinese markets will grow nearly double-digit numbers for a while as SBUX is successfully implementing its coffee shops over there. During the last quarter, China comp sale increased by 7%. There are sizeable opportunities in others markets such as India too. One day, there will be a Starbucks Coffee at the corner of every street of every big city of the world.
Third, no one can ignore SBUX 185% dividend jump in the past five years. The company generates enough cash flow to finance both its aggressive expansion and its also aggressive dividend policy. With a payout ratio around 50%, management has plenty of room to nearly triple its dividend in the next 20 years (assuming a 10% dividend growth rate).
Microsoft (MSFT) for the cloud
When I purchased shares of MSFT back in September 2017, many readers told me the stock was expensive. The stock was trading in the mid $70 while it is now at $90. You know what? The stock will continue to rise and be even more expensive in the next 20 years.
First, Microsoft has an incredible relationship with corporate America. Any serious company in the U.S. uses one or many Microsoft services. The company shows over 800 case studies on their website to prove it. Software like Office 365 will be around (pun intended) for decades to come.
Second, Microsoft is a serious player in the cloud environment. While MSFT has pursued growth through various vectors and failed from time to time, management hit a home run with their cloud business. Azure is growing at a 97% pace right now and is already well established as #2 players in the public cloud service. Strong from its relationship with businesses, MSFT is cross-selling its cloud services to its existing clients and will generate a decade of growth.
Third, Microsoft is the only dividend achiever of the list. Funny that Bill Gates once said he would never pay a dime in dividend; MSFT now shows 14 years with a consecutive dividend increases. This makes it part of the elite Dividend Achievers list. The Dividend Achievers Index refers to all public companies that have successfully increased their dividend payments for at least 10 consecutive years. At the time of writing this article, there were 265 companies that achieved this milestone. You can get the complete list of Dividend Achievers with comprehensive metrics here.
Visa (V) for … well, everything!
Visa seems overvalued by many. A tiny yield combined with an enormous P/E ratio (over 40) doesn't make this financial techno attractive at first. However, the company benefits from so many growth vectors, you do not want to miss it.
First, Visa is the largest player in a growing market. Visa is the world's largest electronic payment processor. In a field where network reach matters, V shows over 3 million of cards accepted by over 44 million merchants across the world. As people are naturally moving away from cash to use their credit card, Visa will naturally grow year after year.
Second, Visa is your best bet to enjoy e-commerce and cryptocurrency opportunities without the volatility. You don't want to dive in Amazon (AMZN) shares because they are trading over 300 PE ratio and you don't want to buy a single coin for your virtual wallet? At the same time, you are kicking yourself as you see both growing like there is no tomorrow (not without some serious drops from time to time)? Well, Visa is being used for lots of e-commerce transaction and offers cards where you can use your bitcoins to pay. In other words; Visa is the perfect partner to enjoy strong growing trends without being caught at the end of the trendy line.
Third, Visa is the way money will navigate in the future. The company is already talking about expanding into new payment segment such as G2C, B2C and B2B payments. Then again, the size of the network is the name of the game. When everybody accepts Visa for payments, everybody will use Visa for payments -- all kind of payments.
I am obviously an owner of the four stocks mentioned above. I bought them at various times over the past five years. Each time I pulled the trigger, the stock seemed expensive. However, I know that they will all be worth a lot more in 20 years and I certainly don't want to be on the sidelines to watch them grow.
What about you? What is your top stock to buy in order to not regret it 20 years from now?
Disclaimer: The opinions and the strategies of the author are not intended to ever be a recommendation to buy or sell a security. The strategy the author uses has worked for him and it is for you to decide if it could benefit your financial future. Please remember to do your own research and know your risk tolerance.
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Many investors focus on dividend yield or dividend history. I respectfully think they're making a mistake. While both metrics are important, aiming at companies that have and show the ability to continue raising their dividend by high single-digit to double-digit numbers will make your portfolio outperform others. When a company pushes its dividend so fast, it's because it is also growing their revenues and earnings. Isn't this the fundamental of investing - finding strong companies that will grow in the future? If you are looking for a great combination of dividend and growth, check out my picks at Dividend Growth Rocks.
Disclosure: I am/we are long DIS, SBUX, MSFT, V.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I hold DIS, SBUX, MSFT and V in my DividendStocksRock portfolios.