I put together a lengthy special report in late 2017 that listed my top 10 stocks for 2018.
I stated that if I were starting out with $10,000 to invest at that time, I’d invest $1,000 each into these 10 stocks
You can access that special report here.
Every stock listed was a high-quality dividend growth stock that appeared undervalued at the time of publication.
I picked undervalued high-quality dividend growth stocks for important reasons.
Undervalued high-quality dividend growth stocks can outperform the broader stock market and be great investments over the long run, all while simultaneously producing much more income than the market.
My report includes data on how and why that happens.
Of course, short-term performance of any business and its stock can vary wildly.
But high-quality companies that pay reliable and rising dividends tend to do very, very well over the long term.
That’s because a company needs to produce the reliable and rising profit necessary to sustain those growing dividends.
And that only happens when a company is providing the world with the products and/or services it demands.
A company that is able to sell more products and/or services to more people, at higher prices, stands to make a lot of money for its shareholders over time.
And since shareholders are the collective owners of any publicly-traded company, growing dividends are simply their fair share of growing profit.
Every stock in the special report included my investment thesis, a breakdown of fundamentals, key dividend metrics, and an estimate of intrinsic value.
Based on what I could see at the time, these stocks looked like great investments for 2018 – and beyond.
I can never guarantee which way stock prices will go, especially over the short term.
However, building a diversified portfolio of high-quality dividend growth stocks for the long term, whereby you buy stocks when they’re undervalued and reinvest growing dividends, should allow you to build an incredible amount of wealth and passive income.
Let’s now revisit that special report and see how the 10 stocks performed.
I’m using the DQYDJ S&P 500 calculator to calculate S&P 500 performance between January 2018 and November 2019 (the most recent full month for data on the market).
The S&P 500 has an annualized total return of 7.43% over that time frame, including reinvested dividends. That means $10,000 invested straight into the S&P 500 would have turned into $11,405 (a total return of 14.046%).
I’ll be using the DQYDJ stock total return calculator to calculate each individual stock’s performance between similar dates. I’ll list the dates individually, which will be based on the data the calculator has for that specific stock.
I wanted to use the same data source to keep things as consistent and fair as possible, although the shorter data set on the S&P 500 might very slightly distort the conclusion.
All calculations include reinvested dividends. Since I tend to focus on dividend growth stocks with above-average yields, the dividend reinvestment does often give these stocks an edge over the S&P 500, especially over a longer period of time.
Stock #1: Amgen, Inc. (AMGN)
Amgen, Inc. is a global biotechnology company that develops and manufactures a range of human therapeutics.
My thesis regarding Amgen is simple.
The world is growing older, larger, and richer. As that plays out, demand for and access to quality healthcare products and services will surely increase.
That bodes well for major biotech companies. And Amgen is one of the best biotech companies in the whole world. That’s why it was my #1 dividend growth stock idea for 2018.
I thought the quality of the business, the dividend metrics, and the valuation all warranted serious consideration at that time.
Amgen finished FY 2017 earning $4.60 per share. It ended FY 2018 earning $5.28 per share – a YOY increase of 14.8%. And its TTM EPS is coming in at $5.67.
Meanwhile, the dividend has been growing nicely.
Amgen increased its dividend almost 10% in late 2018. And they just recently increased their dividend by another 10.3%.
That’s dividend growth investing at its finest.
If we isolate total return performance, the stock has had an annualized total return of 19.61% between 1/3/18 and 12/10/19.
That would have turned $1,000 into $1,414.53.
It’s been a phenomenal performer thus far; however, this is a long-term investment. Amgen is poised to continue printing money for its shareholders for many years to come.
Stock #2: JM Smucker Co. (SJM)
JM Smucker Co. manufactures and markets a variety of branded food products, beverages, pet foods, and pet snacks.
Another simple thesis here.
People have to eat food and drink beverages. It’s a fact of life.
Well, JM Smucker provides a bevy of branded food and beverage products that are “go-to” items for consumers when they’re at the grocery stores.
Think Jiffy peanut butter, Smucker’s jams, and Folgers coffee.
Moreover, they have a healthy pet foods business.
The company has the #1 market share in: peanut butter, fruit spreads, at-home coffee brand, and dog snacks.
They’re set up well for the long term, but the business hasn’t performed quite as well as I’d expect it to. The company has been dealing with changing food trends and a lot of competition (particularly in pet foods).
Still, they’ve been consistently growing their dividend. You learn what a company is made of, and how committed they are to shareholders, when they continue to raise their dividend straight through a challenging stretch.
The company increased the dividend by 9.0% in 2018, then another 3.5% in 2019. Not bad.
If we isolate total return performance, the stock has had an annualized total return of -4.23% between 1/4/18 and 12/6/19.
That would have turned $1,000 into $920.21.
I’d argue that this stock looks even better now as a long-term investment than it did when I first recommended it. That’s because the company’s earnings and dividend are both up since that time, yet the valuation is down.
I don’t think I was wrong on this one. Just early.
Stock #3: Williams-Sonoma, Inc. (WSM)
Williams-Sonoma, Inc. is a nationwide multi-channel retailer of high-quality home products and furnishings.
What I really love about Williams-Sonoma is the fact that they’ve taken full advantage of the massive shift in retail.
Whereas a lot of traditional retailers (especially department stores) have been struggling with the widespread move to e-commerce, Williams-Sonoma has embraced it. More than 50% of their revenue is derived from its e-commerce segment.
And the core business is wonderful. They produce some of the most sought-after home furnishings in the entire industry.
I put the stock on the list because I thought the fundamentals, competitive advantages, risks, and valuation all added up to a very compelling investment case.
And the dividend metrics are great.
To wit, they raised their dividend by almost 10% in 2018. Then they raised it by almost 12% in 2019. That’s accelerating dividend growth, which is music to my ears.
If we isolate total return performance, the stock has had an annualized total return of 20.11% between 1/3/18 and 12/12/19.
That would have turned $1,000 into $1,427.44.
It’s been a great investment over the last couple years, but I believe its best days are still yet ahead.
This is the kind of stock you buy cheap and keep. Just reinvest those growing dividends and watch your wealth and passive income pile up!
Stock #4: AT&T Inc. (T)
AT&T Inc. is an American multinational media conglomerate holding company that provides a range of telecommunications and entertainment services to millions of people.
With a market cap of over $280 billion, this media company needs no introduction.
They’ve come a long way from the old landline phone company.
Now vertically integrated in media, along with one one of the largest telecommunications businesses in the world, AT&T is a key player in the future of content production, content distribution, communications, 5G, and IoT.
This isn’t the kind of stock that provides big price gains.
But it pays out a monster dividend. The stock is currently yielding over 5%, over double the broader market’s yield.
AT&T is still finding its footing after its acquisition of Time Warner Inc. They’re fumbling a bit more than I had anticipated. But they’re still on pace to continue growing one of the largest and most dependable dividends out there.
Like clockwork, they’ve been raising their quarterly dividend by a penny (~2%) near the end of each year. And I think they’ll announce another ~2% dividend raise imminently.
If we isolate total return performance, the stock has had an annualized total return of 5.96% between 1/4/18 and 12/6/19.
That would have turned $1,000 into $1,117.75.
The stock price is basically flat over the last two years, but the big dividend allowed the stock to almost keep up with the entire S&P 500. You basically have a “floor” on performance because of that. My pocketbook appreciates this.
I consider this stock just as appealing in late 2019 as I did in late 2017. If you want a big, reliable, and growing dividend, you could do a lot worse than AT&T here.
Stock #5: Walt Disney Co. (DIS)
Walt Disney Co., together with its subsidiaries, operates as a global diversified media and entertainment conglomerate.
AT&T, through its acquisition of Time Warner Inc., is trying to become what Walt Disney already is.
Walt Disney is a media machine. It practically wrote the book on content production and cross-promotion. And with the Disney+ streaming service it recently rolled out, it’s about to rewrite the book on content distribution.
Whereas AT&T is that big dividend in media, Walt Disney is more of a slow-burning media stock, where you rely on big dividend raises over time to cumulatively add up to a lot of money. Meanwhile, the stock price tends to increase much more because there’s more growth here.
Speaking of growth, the dividend for 2018 was up almost 8% compared to its 2017 counterpart. And I expect much more where that come from, although the dividend announced in December was left unchanged while the company spends on its Disney+ platform.
If we isolate total return performance, the stock has had an annualized total return of 18.44% between 1/3/18 and 12/6/19.
That would have turned $1,000 into $1,385.32.
Their Disney+ streaming service is just now coming online. The company’s going to burn some money in order to get a serious foothold into streaming, but the long-term potential here is amazing.
This is a generational stock that you buy with the intent of holding for the rest of your life.
Stock #6: Enbridge Inc. (ENB)
Enbridge Inc. is an energy distribution and transportation company that owns and operates crude and natural gas pipelines across the United States and Canada.
After merging with Spectra Energy Corp. in 2017, Enbridge is now the largest energy infrastructure company in North America.
Enbridge is the kind of company that talks the talk, then goes out and walks the walk.
If they say they’re going to do something, they do it.
For example, they’ve regularly gone on the record to explicitly state their commitment to growing their dividend at an annual clip of at least 10% through 2020.
Well, they raised their dividend by 10% at the end of 2018, then by another 9.8% just days ago.
Amazingly, the stock yields almost 6.5% right now!
With almost 25 consecutive years of dividend raises, this is the kind of high-yield dividend growth stock you giddily hold while you receive and reinvest those giant dividends.
If we isolate total return performance, the stock has had an annualized total return of 6.09% between 1/3/18 and 12/6/19.
That would have turned $1,000 into $1,120.55.
Enbridge stock is similar to AT&T stock. It’s not going to shock you with big price moves, but that gigantic dividend puts a “floor” on the stock and allows you to enjoy your life while you go about collecting a big, reliable, and growing dividend.
Stock #7: Medtronic PLC (MDT)
Medtronic PLC is a medical devices and technology company that develops, manufactures, and markets a variety of therapeutic products to hospitals, physicians, clinicians, and patients across approximately 160 countries.
The thesis here is similar to that of Amgen.
We have a world that’s growing larger, older, and richer. More older people with more money means demand for and access to quality healthcare products (like those that Medtronic produces) will surely increase over time.
The difference here is that Medtronic addresses that demand through a variety of therapeutic products (like stent grafts and heart valves), rather than pharmaceuticals.
Medtronic practically prints money due to their business model and the shift in demographics.
They finished FY 2017 earning $2.89 per share. They finished FY 2019 earning $3.41/share, which is a 18% increase.
The dividend follows a similar track, increasing 8.7% in 2018 and another 8% in 2019.
Again, this isn’t a short-term investment. It’s the kind of stock you buy and hold forever.
That said, it has done well since I included it in my special report.
If we isolate total return performance, the stock has had an annualized total return of 20.42% between 1/3/18 and 12/6/19.
That would have turned $1,000 into $1,430.28.
It’s been a big winner. The biggest on my list.
However, it’s set up to be a big winner for decades to come. Don’t let this stock slip between your fingers.
Buy it. Keep it. Reinvest those growing dividends. Enjoy.
Stock #8: Hanesbrands Inc. (HBI)
Hanesbrands Inc. company is an apparel marketer and manufacturer, with a portfolio of apparel brands across t-shirts, innerwear, casualwear, activewear, socks, and hosiery.
Well, I’m not sure what to say about this one.
It’s been a surprising investment, to say the least.
I don’t want to say disappointing, though.
The business has done well over the last couple years. It finished FY 2017 generating $6.471 billion in revenue. TTM revenue is up to $6.984 billion. Meanwhile, EPS and FCF continue to move in the right direction.
However, the stock has done anything but well. It’s just a disconnect between business performance and stock performance here. That’s how the stock market works sometimes. You can look right on paper, but be totally wrong on money.
And I’ve been shockingly wrong on this one.
The dividend has been static since early 2017, which is the one thing that I can say has been really disappointing.
I still think the future is bright here in terms of the business. The Champion brand, in particular, is all the rage right now. It’s arguably a much better long-term investment today than it was two years ago.
But the stock is, unfortunately, not doing well at all. And I’m not sure when that’ll turn around.
If we isolate total return performance, the stock has had an annualized total return of -12.76% between 1/3/18 and 12/10/19.
That would have turned $1,000 into $767.59.
I’m a little bit embarrassed by the performance of this one. I honestly don’t know what to say.
The crazy thing is, the stock is extremely cheap. The P/E ratio is below 10 right now.
They continue to move the business up, while the stock goes the opposite way. It’s bewildering.
Sorry, guys. I got this one wrong. At least, thus far.
Stock #9: Omnicom Group Inc. (OMC)
Omnicom Group Inc. is an advertising, marketing and corporate communications company.
Omnicom is so interesting. Buying its stock is like investing in the whole world.
The second-largest company of its kind in the world, they’ve achieved an incredible amount of scale, diversification, breadth, and depth across the entire business.
For perspective, the company has over 5,000 clients in more than 100 countries. The largest client represented just 3% of FY 2016 revenue, with their top 100 clients making up 52% of revenue.
The business has performed solidly since I put it on my list.
EPS for FY 2018 jumped over 25% YOY. Net margin is expanding. They’ve increased the dividend by 8.3% in February 2019, and they’re due for another dividend increase any day now. I expect another strong increase for the dividend payable in April 2020.
If we isolate total return performance, the stock has had an annualized total return of 8.56% between 1/3/18 and 12/10/19.
That would have turned $1,000 into $1,172.40.
If we look at where the business is at relative to where it was in late 2017, and then compare valuations, I think it looks just as attractive today as it did then.
However, that attractiveness is reserved for a long-term mindset. I don’t know where the stock will go tomorrow or next week, but I think this will be a fine, fine investment for the next decade or so.
Stock #10: Papa John’s International Inc. (PZZA)
Papa John’s International Inc. company operates and franchises pizza delivery and carryout restaurants, with more than 5,000 restaurants spread out across 50 US states and 45 countries.
The investment thesis here is about as simple as it gets.
People love pizza. It’s a delicious food item (in moderation). If it tastes great and provides value at the right price point, a pizza company can do wonderful over the long term.
It’s a “one-foot bar” to step over, as Warren Buffett might say.
However, this idea was practically sabotaged by the most unlikely of sources. Papa John, himself.
The founder and former CEO, John Schnatter, after a series of bizarre actions, tanked the stock and found himself kicked out of his own company.
Absent this unforeseen situation, I think this business and stock would have performed spectacularly over the last couple years.
Alas, fate would not have it that way.
Revenue and EPS are both way down over the last couple fiscal years. Meantime, the dividend is being held static right now.
This was a bit of a wild card. It was the only stock on my list that I wasn’t personally invested in. I’m still not. I am a shareholder in the other nine companies, as you can see in my real-money FIRE Fund.
But I think Papa John’s is a great turnaround story. The company appears to be on the cusp of a new, exciting chapter in its legacy. Bringing on Shaquille O’Neal as a brand ambassador and board member, for instance, might be just the catalyst it needs.
If we isolate total return performance, the stock has had an annualized total return of 5.65% between 1/3/18 and 12/12/19.
That would have turned $1,000 into $1,112.76.
Not that bad, all considered.
But I think this would have been an amazing investment, had the CEO situation not have gone down the way it did.
With John Schnatter all but out of the picture completely, this stock is perhaps set up even better now than it was in late 2017.
Bottom line: These 10 stocks appear to have outperformed the S&P 500. And since every one of them features a higher yield than the S&P 500, you’d also be collecting more income.
Investing $1,000 each into my top 10 stocks for 2018 would have turned that $10,000 into $11,868.83.
That’s more than the $11,405.00 you’d have with the S&P 500 over the aforementioned period.
Investing in undervalued high-quality dividend growth stocks does allow you to have your cake and eat it, too!
Of course, comparing performance over arbitrary time frames can distort reality. The truth is, I recommend investing in high-quality dividend growth stocks for the long term. Buy shares in world-class enterprises when the stock is cheap, reinvest that growing dividend income, hold for the long haul, and watch your wealth and passive income stack up.
These 10 stocks may very well run away from the broader market over the next 10-20 years with growing dividends causing a dividend growth snowball effect.
P.S. Opportunities to outperform the S&P 500 and collect more income are all around you, even in an elevated market.
In fact, I recently put together a list containing my Top 10 Stocks for 2020.
Don’t miss out on it.
This list contains some of the highest-quality dividend growth stocks in the world. And all of them appear to be attractively valued right now.