Legendary investor Peter Lynch famously said people looking for stocks should buy what they know. Lynch said non-professional individual investors can outperform so-called Wall Street experts by investing in companies and industries that they already use and understand.
Investing for financial security in retirement is a long game. Lynch wrote his popular book One Up on Wall Street in 1989. If investors had followed that advice by owning stocks of well-known businesses like Home Depot (HD +0.33%), Target (TGT 0.62%), and Costco (COST +0.00%), among others, they'd be much wealthier today. The charts below help make that clear.
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Steady, long-term growth
Three decades is a long time, but plenty of consumers were shopping at Home Depot, Target, and Costco 30 years ago. And familiar companies like paint maker Sherwin-Williams (SHW +1.61%) and auto parts retail chain AutoZone (AZO +1.52%) weren't start-ups at the time either. But investors don't need to bet on young, pre-revenue companies to experience tremendous growth.
These five mature companies have had outstanding growth in both revenue and earnings per share (EPS) since Lynch advised investors to buy familiar names.
Data by YCharts
It should be noted that AutoZone has traditionally prioritized share repurchases, which has resulted in outsized growth in EPS as the share count is reduced.
Outsized returns
Of course, what matters to investors is whether underlying business success results in satisfactory investment returns. And all of these companies come through in that department as well. The chart below shows their total returns, including dividends, compared to the S&P 500 index since the start of 1990.
Total Return Level data by YCharts
Income along the way
As mentioned, some of those total returns come from dividend payments. AutoZone is the only one of those names not to pay a dividend, as it pours its free cash flow into share buybacks. But the other four companies have consistently increased regular shareholder payouts, and the pace has increased in the past two decades.
Costco has also increased its dividend along the way, but it prefers to pay supplemental dividends when times are good. It has paid a special dividend to shareholders four times in the last eight years, including a $10-per-share payout in December 2020 funded by existing cash.
The continuously rising dividend payments shown above also give investors the opportunity to reinvest that money to compound returns even further. Target and Sherwin-Williams are among the list of Dividend Aristocrats that have increased dividends for at least 25 straight years. Target, in fact, recently joined the even more elite list of Dividend Kings with dividend growth in 50 consecutive years.
The race is a marathon
Many newer investors have likely gotten used to hefty market returns after an extended bull run. Other than the brief, pandemic-induced bear market in 2020, it has been a decade-long bull market with outstanding returns.
But the market will inevitably hit bumps in the road, as it has done several times over the past 30 years. Investing for retirement is a long game, however. When Peter Lynch said in 1989 to buy what you know, he probably didn't even envision the type of results one could get from some common names that many would consider boring investments. These companies aren't finished growing, either, and there are others that could have similar results 30 years from now. Investors today should be sure to consider any investment a marathon, not a sprint, and the rewards could be substantial.
