No matter what kind of investor you are — even if you routinely go for “value” — future growth matters.
As a proponent of Dividend Growth Investing, the strategy’s name implies what I want first and foremost: a history of increasing dividends, and reasonable expectations of more to come.
I also want to see serious total return, however, and that means the companies I own had better be growing their earnings and revenue year after year after year.
With all that in mind, I decided to make add-on buys to some of the Income Builder Portfolio’s “growthier” names:
- Blackrock (BLK) — the world’s largest asset manager
- UnitedHealth Group (UNH) — the nation’s leading health-insurance provider
- Morgan Stanley (MS) — one of Wall Street’s major investment banks
- Starbucks (SBUX) — the largest specialty coffee chain in the world
On Monday, Oct. 18, I will divide the $1,000 semi-monthly allocation between those four blue-chip businesses on behalf of Greg Patrick, this site’s co-founder and the IBP’s “money man.”
History of Growth
Let’s start by looking at recent performance … and check out how these high-quality companies have fared on a total-return basis when compared to the overall market.
As you can see, each crushed the market over the last decade, with UnitedHealth scoring an almost 3-to-1 advantage over the SPDR S&P 500 Trust ETF (SPY).
They got there by growing earnings per share and revenue at an enviable clip.
For the above chart, in addition to the four companies we’re buying Monday, I added two names: Visa (V), a renowned growth stock; and Johnson & Johnson (JNJ), often called the quintessential DGI portfolio holding.
Morgan Stanley, UnitedHealth, BlackRock and Starbucks held their own against Visa, and all four easily bested JNJ.
Earnings Aplenty … And More To Come
Three of the four companies — UNH, MS and BLK — issued their third-quarter 2021 earnings reports in the past few days. All three not only exceeded analysts’ expectations by miles, they also recorded huge year-over-year growth.
And those are just the earnings numbers.
Revenues increased 26% year-over-year for Morgan Stanley, 16% for BlackRock, and 11% for UnitedHealth Group. Other important metrics, such as assets under management (for BLK and MS), and operating margin (for UNH) also showed tremendous growth.
Starbucks doesn’t report earnings until Oct. 28, and I usually prefer to wait until after such presentations so I don’t get clobbered by negative surprises. But I feel good about the company’s ability to deliver. Since 2013, the only quarter in which SBUX had an earnings miss was Q2 2020 — during the depths of the COVID-19 pandemic.
While past performance gives a nice picture into a company’s ability to operate effectively over the long haul, investing should always be a forward-looking exercise.
These four companies are expected to grow earnings at an outstanding clip over the next several years.
Big-Time Dividend Growth, Too
As the following table from Simply Safe Dividends shows, these are reliable dividend payers and aggressive dividend growers.
Of the four, Starbucks was the most recent to announce a dividend raise — lifting its quarterly payout from 45 cents/share to .49, effective with the Nov. 26 payment. (The ex-dividend date is Nov. 11, so those who want to capture this distribution must own the stock by Nov. 10.)
While SBUX extended its streak of annual dividend hikes to 11 years, this most recent 8.9% raise was Starbucks’ smallest ever.
That downward trend isn’t surprising, as it often happens when a company matures. Some things, though, are more difficult to predict.
Most observers felt Morgan Stanley would give shareholders a generous raise after having to freeze its dividend during the first year of the pandemic … but few (if any) analysts forecast a delightful doubling of the divvy.
That enormous increase played a role in my selection of MS for the Income Builder Portfolio in July, and in my decisions to add to the position both last month and now.
UnitedHealth’s 21% raise for 2021 was its 11th straight of at least 17%. BlackRock also has been a frequent double-digit dividend hiker.
Companies can’t raise their dividends like that if their executives lack good capital-allocation skills. So it’s no coincidence that Morningstar gives all four of these great businesses its highest grade in that department — “Exemplary” — as shown in the following quality summary.
Wrapping Things Up
As a relatively new grandpa, it’s been fun watching little Owen grow from a newborn to an almost 1-year-old.
As an investor, it’s also been fun to watch the growth of my “baby,” the Income Builder Portfolio.
The IBP’s 44 positions combine to generate about $3,200 in annual income — well ahead of my $5,000-in-7-years target — while also producing competitive total return. (See the entire portfolio HERE.)
And I expect to see plenty of growth ahead as we keep increasing the size of our positions in strong businesses like BlackRock, UnitedHealth, Starbucks and Morgan Stanley.
In my post-buy article, scheduled to be published on Tuesday, Oct. 19, I’ll take an in-depth look at each company’s valuation.
As always, investors are urged to conduct their own thorough due diligence before buying any stocks.
Note: UnitedHealth also is part of my Growth & Income Portfolio, another real-money project I manage for this site. The GIP includes some companies that have been increasing dividends for decades, as well as iconic growth stocks such as Alphabet (GOOGL) and Amazon (AMZN). Check it out HERE.
— Mike Nadel
We’re Putting $2,000 / Month into These StocksThe goal? To build a reliable, growing income stream by making regular investments in high-quality dividend-paying companies. Click here to access our Income Builder Portfolio and see what we’re buying this month.
Source: DividendsAndIncome.com