One of the most interesting things about investing in stocks, from my perspective, is that it's viewed as super risky by many people. And while there's certainly risk with stocks, since their prices can move up and down sharply and unexpectedly, history has shown that a diversified stock portfolio actually becomes less likely to lose value -- and more likely to generate positive returns -- over the long term.
And dividend growth stocks -- companies that pay a dividend and plan to boost it regularly over time -- are true "keep forever" stocks. Three of the best are Mastercard Inc. (MA -0.20%), Starbucks Corporation (SBUX 1.62%), and CareTrust REIT Inc. (CTRE 1.76%). While these are three very different businesses, they all share the common thread of past dividend growth and strong prospects to continue increasing their payouts for many years to come.
A major player in the changing way consumers pay
If you spend five minutes in almost any retail outlet in any developed nation, you'll almost certainly see someone paying for an item with a card. It's simply how we pay for most things these days. But on a global basis, some 80% of transactions are still done in cash. That's steadily changing, though, and Mastercard is right in the middle of it.
Not only does Mastercard operate one of the biggest secure payment networks on earth, connecting financial institutions, merchants, and consumers, but it is also a key technology provider, a role that will only continue to expand. One of the biggest drivers of the cashless economy that will dominate the future is mobile computing. Smartphones are making it easier and safer for millions of consumers in developing economies to buy -- and sell -- goods and services, and Mastercard is taking steps to be a big player in this area, as the recent acquisition of a longtime partner company Oltio demonstrates.
Looking ahead, Mastercard is likely to generate double-digit earnings growth for many years to come. Its stock may only yield a 0.51% dividend at recent prices, but the payout has increased fourfold in the past five years.
Fast-forward another 20 years down the road, and the dividend is likely to be substantially higher than today's payout. That alone should make Mastercard worth keeping.
Starbucks' second growth phase could be bigger than the first
Starbucks investors haven't had the best experience over the past several years. While the S&P 500 has generated total returns of more than 46% since late 2015, investors in the king of caffeine have watched the share price struggle. Since October 2015, Starbucks' stock price is down almost 8%.
More recently, the share price was 9% below the all-time high in mid-2017.
So what gives? In short, investors have become fearful that the company's growth story is coming to an end, as the changing retail landscape in its biggest market -- North America -- has put pressure on same-store sales growth for more than a year. And while management is taking steps to improve comps, the biggest reason to buy and hold Starbucks going forward isn't its dominance at home but rather where its future looks to be: China.
In mid-2017, the company made a bold move, spending about $1 billion to acquire full ownership and assume operations of all its stores in mainland China. At the end of 2017, it operated over 3,000 locations in the country, a bare fraction of the number in North America. But that's going to change -- and quickly. On the earnings call, CEO Kevin Johnson said, "I have no doubt that, one day, Starbucks will have more stores in China than we have in the U.S...." as well as pointing out that the company opened a most-ever 188 new stores in the quarter.
It's already starting to pay off on the bottom line, too. The China/Asia Pacific region increased non-GAAP operating income almost 20% in its most recent quarter, "representing the majority of Starbucks' operating income growth in the quarter," according to CFO Scott Maw.
Right now, the market is focused on a challenging U.S. retail environment, and that's created a nice opportunity for investors to buy Starbucks at a reasonable valuation, while also capturing a 1.9% dividend yield and likely years of dividend growth from this "hold forever" gem.
Small company, big trend
CareTrust REIT's business is investing in and owning skilled nursing, assisted living, and independent living facilities. And with some 3 million baby boomers turning 65 each year, America's senior population is set to double from 2015 to 2029. Furthermore, most of those boomers will live well into their 80s, creating the largest 80-plus population in history. This is going to require a substantial increase in the number of facilities to care for and support this aging population, and CareTrust is positioned to profit.
At last count, the company owned 194 properties in 25 states, making it relatively small compared to the biggest public companies in the space. Its small size, however, has been an advantage. CareTrust has more than doubled its property count and rents since going public in 2013 mainly via smaller acquisitions the big boys overlook. Funds from operations per share are up almost 300% since IPO, helping fund big increases in the dividend. After a recent 11% increase (that pushed the yield to nearly 6% at recent prices) CareTrust's regular dividend is up 64% from the initial payout in 2014.
A couple of decades into the future, CareTrust's property count, cash flows -- and dividends -- are likely to be substantially larger. It may be very unlike the other two companies discussed above, but it certainly belongs in the conversation about stocks to buy and hold forever.