When measuring returns, just looking at a stock's price doesn't tell investors everything they need to know. Total returns that include dividends show the real story. And that can make an enormous difference.
Of course, simply reaching for high dividend yields isn't the right approach. Great long-term investments only come from businesses with solid long-term prospects. The good news is you don't have to get fancy when searching for hidden big winners.
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The following three companies are well known to retail investors, and they have outperformed the S&P 500 index over the last 20 years in share price returns alone. But factoring in dividends paid shows the dramatic difference in returns. Home Depot (HD 2.51%) has more than doubled the broader index's returns while Costco (COST +1.08%) has more than tripled it. Outdoor recreation GPS device maker Garmin (GRMN 2.09%) has beaten the index by a factor of six.
Total Return Level data by YCharts.
For investors who have held any of these three stocks for an extended period of time, they likely contributed to building life-changing wealth. And the future looks bright for each of these three companies.
1. Home Depot: Strategies paying off
Home Depot rode strong tailwinds during the pandemic by remaining open as an essential business and supporting a surge in home project work. But that success was based on a strategy and technology that began well before the pandemic.
The company initiated One Home Depot in 2017, a multi-year strategy for an $11 billion investment to build the company's online channels and merge the digital and physical shopping experience for customers. It also acquired HD Supply, a supplier of maintenance, repair, and operations products, in an $8 billion deal announced in late 2020 to enhance its professional contractor base. Those two business strategies have paid off and should continue to do so going forward.
The results speak for themselves. Sales for Home Depot's fiscal 2020 period ended Jan. 31, 2021, grew 20% over fiscal 2019. That business strength continued into fiscal 2021 with net revenue growing almost 19% for the six months ended Aug. 1, 2021. Management is sharing that success with shareholders. Home Depot announced the authorization of a new $20 billion share repurchase program in May 2021. It also increased its quarterly dividend by 10% this year, continuing a string of annual increases that began in 2009.
2. Costco: A different approach to dividends
Popular warehouse retailer Costco increased its dividend by 13% this year. That came after a similarly successful fiscal year with the company prospering throughout the pandemic. For its fiscal year 2021 ended Aug. 29, 2021, Costco's net sales jumped almost 18%. And that came on top of a more than 9% jump the previous fiscal year. Net income for fiscal 2021 soared 25% over the prior year.
As business was thriving, Costco rewarded investors with a $10 per share special dividend in November 2020. That represented the fourth supplemental dividend payout from the company in the last eight years. Shareholders received those payments in addition to a base dividend that was increased by 13% this year as well.
Costco has a history of sharing excess cash with shareholders when times are good. And the company has a loyal customer base that should ensure success will continue. Its 110 million membership cardholders have a 91% renewal rate in the U.S. and Canada.
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3. Garmin: Under-the-radar winner
GPS-enabled device maker Garmin has come a long way since it was mostly known for its automotive navigation devices. It now receives almost 90% of its revenue from its fitness, outdoor, aviation, and marine segments. And sales of those offerings are currently growing at well into double-digit rates.
Overall revenue grew 11% in 2020 versus 2019. But management is predicting 2021 year-over-year sales will grow between 10% and 27% in each of its segments, led by marine, fitness, and outdoor.
Garmin also shares its considerable cash flow with shareholders. It has increased its dividend by almost 70% in the past 10 years, at the same time it has continued to invest in, and grow, the business. Investors have experienced share price gains of more than 580% in that time. Management has also built up a balance sheet with no debt and $3.2 billion of cash and marketable securities as of June 26, 2021.
It may be surprising to see that Garmin stock has performed the best among this trio over the past two decades. With momentum in the business growing due to the popularity of outdoor recreation including boating, camping, running, and biking, the underlying business success should continue. And with its solid balance sheet and history of rising dividends, past performance might still be an indicator of future results for investors in Garmin.
