Dividend growth investing can be a fantastic way for investors to begin their march toward meeting retirement goals. Not only have dividend-paying stocks generally outperformed the market as a whole, but stocks that increase their dividends annually have even higher returns.
In addition to this outperformance, dividend stocks tend to be more resilient in tougher market conditions, giving investors the best of both worlds -- outperformance and a layer of safety.
Today we will look at two stocks that fit this dividend growth mold to perfection and would be tremendous stocks to buy and hold forever.
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Starbucks
Driven by its mission "to inspire and nurture the human spirit," Starbucks (SBUX 2.58%) has rapidly become one of the most beloved brands in the world. Thanks in part to its Net Promoter Score (NPS) of +77, Starbucks' stock price has risen over 30,000% since its IPO -- meaning that a $1,000 investment in the '90s would be worth over $300,000 today.
NPS is a valuable rating system that calculates a company's overall customer loyalty and determines if they are promoters or detractors of its products. Rating on a scale of -100 to +100, anything above +50 is considered exceptional, making Starbucks' score of +77 almost hard to believe.
Speaking to this high NPS, consider that in China, the company's second-largest market, one out of every two consumers prefers Starbucks coffee over any other "away from home" brand. Similarly in the U.S., Starbucks Rewards members account for 51% of U.S. sales during the fourth quarter of 2021.
These figures highlight how deeply loyal its customers are to the Starbucks brand -- a loyalty that only the pandemic could slow. However, after seeing sales drop 11% in 2020, revenue recovered beautifully in 2021, jumping 24% year over year.
Starbucks achieved this growth despite many stores facing COVID-19 restrictions. Take China, for example, where a COVID-19 resurgence led to 80% of the company's stores being forced to close or operate at lessened capacity due to public health protocols. As the world economy gradually continues reopening, Starbucks is poised to top its record-setting sales from 2021.
On top of this operational prowess, Starbucks is quickly becoming a juggernaut in returning cash to shareholders, both through dividends and share buybacks. In fact, over the last five years, it has lowered its shares outstanding by 20% while boosting its dividend by 125% over the same time. Looking ahead, management expects to return an additional $20 billion to shareholders through the company's 1.7% dividend and new share buybacks.
This combination of shareholder return wizardry and the company's immense brand loyalty makes Starbucks a brilliant dividend growing investment to hold forever -- especially at only 32 times earnings.
Nasdaq
Famous for its namesake index, Nasdaq (NDAQ 0.25%) has quietly been a monster of a stock, rising over 700% in the last decade. In addition to its index, the company plays a key role in helping many of today's biggest technology companies go public through its listing operations -- offering investors natural diversification in the tech market.
Further diversifying its operations, Nasdaq has four distinct business units: market services, corporate platforms, investment intelligence, and market technology. However, of note to investors is that 83% of its operating profit comes from the market services and investment intelligence units alone.
Market Services derives its revenue from trading, clearing, and trade management services, while investment intelligence consists of market data, analytics, and index-based revenue. Together, they act as Nasdaq's cash machine, with a combined 64% operating margin that allows the company to focus on new growth opportunities in its two smaller units, corporate platforms, and market technology.
First, within market technologies, Nasdaq has its sights set on becoming the market's surveillance, fraud, and anti-money laundering expert. Fueled by its Verafin acquisition, the company grew its anti-financial crime sales by over 100% year-over-year for the third quarter. With the anti-financial crime market expected to grow 17% annually through 2024, this business unit could create a whole new area of growth for Nasdaq.
Second, Nasdaq is focused on growing its Investor Relations (IR) and Environmental, Social, and Governance (ESG) services in its corporate platform unit. Through ESG program-building, management evaluations, and its OneReport technology, these services pair beautifully with the company's listing operations. As ESG continues to become increasingly important throughout the investing landscape, Nasdaq has positioned itself to become the leader in this area -- largely thanks to having the first contact with companies listed on the Nasdaq exchange.
All in all, Nasdaq has many moving parts, making the task of trying to value it quite complicated. Ultimately, however, it is a true cash cow, with a profit margin of 20%. Thanks to this profitability, Nasdaq pays a 1.1% dividend while only recording a payout ratio of 30%. Combining its growth prospects, dividend history, high profit margin, and a price-to-earnings ratio of 30, Nasdaq makes for a phenomenal lifelong holding.
