For investors with the patience to let their gains compound for years, buying and holding high-quality dividend stocks is the best way to predictably generate wealth over the long term. But given the S&P 500's strong historical average return of roughly 10%, finding dividend stocks that can actually beat the market is easier said than done.
To that end, we asked three top Motley Fool contributors to discuss dividend stock winners that they believe investors would be wise to consider buying today. Read on to learn why they chose NVIDIA (NASDAQ:NVDA), CareTrust REIT (NASDAQ:CTRE), and PepsiCo (NASDAQ:PEP).
This high-flying dividend payer is just getting started
Steve Symington (NVIDIA): Given its stellar performance in recent years, it's easy to forget that NVIDIA pays a modest dividend yielding 0.4% annually as of this writing. After all, shares of the graphics chip specialist have more than tripled over the past year alone, including a nearly 30% pop so far in 2017.
But that rise happened with good reason. Wall Street has consistently underestimated the potential of NVIDIA's high-performance GPUs to revolutionize multiple high-growth industries. Last quarter, for example, NVIDIA achieved double-digit revenue growth in three of its five market platforms, including gaming (up 49% year over year to $1.027 billion), data centers (up 186% to $409 million), and automotive (up 24% to $140 million). All told, NVIDIA's consolidated quarterly revenue climbed 48% year over year to $1.937 billion, while earnings per share jumped 126% to $0.79 -- both crushing expectations in what is typically supposed to be its slowest quarter of the year.
What's more, earlier this month NVIDIA introduced its new Volta GPU platform, which -- with its 5x-performance improvement over NVIDIA's current-generation Pascal GPU architecture -- will focus on automating artificial intelligence and accelerating high-performance computing (HPC) and graphics workloads. In particular, NVIDIA believes Volta is poised to become the new standard for HPC and even further accelerate its stellar growth in the data center market.
So despite NVIDIA's incredible gains so far, I still think the stock has room to continue to reward long-term investors from here.
This new winner is built to grow for decades
Jason Hall (CareTrust REIT): While shares of rehab and senior housing facility owner CareTrust REIT are barely up 2% since spinning out of Ensign Group in 2014, total returns, including dividends, have made it a market-crushing investment:
A big part of that return was a huge one-time special dividend of $5.88 per share paid after going public. CareTrust has also increased its regular dividend a whopping 48%, including a 9% increase in 2017.
There's plenty of reason to count on management being able to regularly pump up the payout going forward. To start, the U.S. is entering into a period of people reaching retirement age unlike anything we've ever experienced. Over the next 15-plus years, an average of 3.5 million Americans will reach retirement age every year, a trend which will nearly double the country's 65-and-older population in about 20 years.
This will create a lot of demand for the skilled nursing, rehab, and senior housing facilities CareTrust buys, builds, and owns. And with less than 150 properties in its portfolio to date, CareTrust is in a unique position as a very small player in a very big growth industry.
Its growth so far is paying off. Even after increasing the payout by 9% this year, CareTrust pays out less than 70% of funds from operations. This is a nice measure of safety, as well as an extra tool combined with debt and share issuance, to help fund new acquisitions. If management can continue its excellent capital allocation, CareTrust could be a winning dividend stock for decades.
You'll drink to this dividend stock
Dan Caplinger (PepsiCo): Consumer products companies make great dividend payers, and PepsiCo has an impressive track record in returning capital to its shareholders through dividends. The beverage and snack giant has raised its quarterly payouts annually for 45 straight years now, and its dividend yield near 3% is still well above what you'll find from the typical dividend stock in the market right now.
PepsiCo has had to overcome some challenges recently, as consumers have shifted away from sugary carbonated beverages like its namesake cola in favor of what they perceive as healthier offerings. However, PepsiCo had a head start in adapting to the new emphasis on healthy snacks and drinks, as CEO Indra Nooyi foresaw and even helped to spearhead changing behavior among customers of the company's various businesses, which include not only Pepsi but also snack giant Frito-Lay and other household names like Quaker Oats. As a result, PepsiCo has been able to answer the call even as rivals have had to scurry to change their strategic direction.
Going forward, PepsiCo still has plenty of growth potential left. And given its history of passing on its bounty to shareholders through its quarterly payouts, dividend investors can look forward to participating in PepsiCo's growth for a long time to come.
Dan Caplinger has no position in any stocks mentioned. Jason Hall owns shares of CareTrust REIT. Steve Symington owns shares of Nvidia. The Motley Fool owns shares of and recommends Nvidia and PepsiCo. The Motley Fool has a disclosure policy.