How do you know that a stock has truly made it? I would argue that reaching the $1 trillion market capitalization milestone is the telltale sign that a stock has achieved something very special. At present, there are just six such companies, but no doubt others will begin to reach those lofty heights in the years to come.
Here are four dividend-paying stocks that aren't quite there yet, but their dominance in rapidly growing industries almost guarantees that they will be by 2035.
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Johnson & Johnson: Market cap of $380 billion (est.)
As the largest pharma stock by market cap, Johnson & Johnson (JNJ -0.46%) probably needs no introduction. While best-known for such consumer brands as Tylenol and Motrin, J&J actually has an even larger pharmaceutical segment, accounting for nearly 55% of the company's $69 billion in net sales year to date. Key products in that group include immunology blockbusters Stelara and Tremfya as well as cancer drugs Darzalex and Imbruvica (co-owned with AbbVie).
In fact, J&J will be separating its consumer health segment into a new, publicly traded company. This is a lower-margin, lower-growth business -- accounting for just 16% of J&J's overall revenue -- leaving the faster-growing pharma business. It's anticipated that total medication spending around the world will grow from $1.27 trillion last year to $1.60 trillion by 2025.
Given J&J's strength in the pharma industry, it is well-positioned to ride this wave of growth. That's why I anticipate the stock's non-GAAP earnings per share (EPS) will grow at over 8% annually over the next five years (adjusted for the consumer-business spinoff).
If we discount J&J's current market cap of $430 billion by $50 billion (to roughly adjust for the upcoming spinoff), that leaves us with a $380 billion valuation for the remaining business. J&J would need to grow its share price about 8% annually over the next 13 years -- a reasonable goal -- to reach a $1 trillion market cap.
UnitedHealth: Market cap of $438 billion
The second stock that could be worth $1 trillion by 2035 is mega-cap health insurer UnitedHealth Group (UNH 0.30%).
Because healthcare is becoming more costly with each passing year, market research firm Allied Market Research forecasts that more consumers around the world will purchase health insurance as a hedge against these costs. The firm believes this will result in the global health insurance market growing 9.7% annually from $1.98 trillion last year to $4.15 trillion by 2028.
As the largest health insurer in the world, UnitedHealth is as well-positioned as any company to benefit from this trend. This may explain why analysts predict the company's non-GAAP EPS will grow more than 14% annually over the next five years. While this would be a sharp drop from the 23% annual clip of the past five years, it would be more than enough to push UnitedHealth beyond a $1 trillion market cap by 2035.
That's because to reach a $1 trillion market cap, UnitedHealth's stock price only needs to rise just under 7% annually over the next 13 years. Meanwhile, investors can collect a market-matching 1.3% yield from the stock as they wait for its growth to play out.
Mastercard: Market cap of $333 billion
The third stock that could reach a market cap of $1 trillion by 2035 is Mastercard (MA 0.07%) the second-largest payments processor in the world behind Visa (V -0.23%).
It's no secret that cash transactions have been on the decline for decades. And yet, the card payments market is only worth about $45 trillion in a global payments market valued around $185 trillion. This means Mastercard still has plenty of runway ahead, especially in the business-to-business payments category.
That is precisely why analysts are expecting non-GAAP EPS growth to accelerate from 22% annually in the past five years to 26% annually over the next five years. Of course, Mastercard can't grow this fast forever. But it doesn't need to in order to attain a $1 trillion market cap by 2035.
In fact, the stock only needs to appreciate about 9% annually over the next 13 years to join the trillionaire club. Until then, investors can park their capital in this wonderful business and collect a 0.6% dividend. While this is the smallest yield among the four stocks I'm covering, it still beats basically any rate you can collect in a savings account, and the potential for upside in the company is huge.
Broadcom: Market cap of $243 billion
The fourth and final stock that I believe is capable of achieving a $1 trillion market cap by 2035 is the semiconductor maker Broadcom (AVGO 3.84%). Like the other three stocks I have examined, Broadcom is among the largest in its field, ranking fifth among computer-chip stocks in the world by market capitalization.
While that still leaves plenty of other major players, there should be more than enough business to go around. This is because semiconductor companies will be pivotal in meeting the growing demand for consumer electronics devices around the world, according to market research firm Fortune Business Insights. As a result, the firm expects that the global semiconductor industry will compound at an 8.6% growth rate annually, from $452 billion this year to $803 billion by 2028.
Given the tremendous growth potential of the semiconductor industry, analysts are projecting that Broadcom will deliver 15% annual non-GAAP EPS growth over the next five years. But the stock only needs to appreciate about 12% annually over the next 13 years, putting $1 trillion well within reach.
Plus, some good news for income lovers. The company just raised its dividend by 13.9% to $4.10 per quarter, giving investors a nice 2.8% dividend yield to pocket as they wait.
