If a company pays a dividend, that doesn't mean you shouldn't expect it to focus on growth initiatives. In some cases, it may just offer a dividend to appeal to a wider group of investors, some of whom may require a recurring payout.
Three dividend stocks that have achieved incredible gains since 2020 are Eli Lilly (LLY 1.19%), Nvidia (NVDA 6.18%), and Dick's Sporting Goods (DKS 1.43%). While not all of them offer high payouts, they do make recurring payments, and have been amazing investments to hold over the past few years.
1. Eli Lilly
Healthcare company Eli Lilly has been a great stock to own, as it offers a modest dividend yield of 0.8% while also possessing some attractive growth prospects. Since 2020 the stock has risen by more than 315%, easily beating the S&P 500, which has increased in value by just 38% over that period.
A lot of the company's growth has come within the past year, as excitement surrounding its diabetes medication Mounjaro has taken the business to another level. The new drug generated just under $980 million in revenue for the three-month period ending June 30, and is already one of the company's top sellers. A year ago, it brought in just $16 million.
But what has investors most excited about the drug is its potential as a treatment for weight loss. In clinical trials it has shown that it can help people lose close to 27% of their weight. It has the potential to generate $68 billion in peak sales, according to analysts.
With an asset like that in the company's portfolio, it's easy to see why investors remain bullish, as this could become one of the best growth stocks to own for years. Although it's trading at 56 times its estimated future profits, it may still not be too late to invest in Eli Lilly given the massive growth opportunities that are on the horizon for the business.
2. Nvidia
As well as Eli Lilly's stock has done, it still pales in comparison to Nvidia's performance. Since 2020, it has skyrocketed more than 720%. Like Eli Lilly, however, it too has achieved much of its gains within the past 12 months. The emergence of ChatGPT has led to a rally in many stocks that can benefit from artificial intelligence (AI).
With Nvidia making AI chips and even having an AI platform, it can help companies roll out their own AI-powered applications. The company recently reported earnings for the second quarter, which ended on July 30, and sales of $13.5 billion doubled from a year ago. CEO Jensen Huang says "A new computing era has begun. Companies worldwide are transitioning from general-purpose to accelerated computing and generative AI."
Investors might forget that this is also a dividend stock, with Nvidia paying a very modest yield of 0.03%. It's not a stock investors who are primarily focused on a dividend might target, but this is still an investment that will pay you on a recurring basis.
At 45 times its estimated future profits, investors are paying a big premium for Nvidia. My concern is that the excitement around AI could slow down, especially if a recession hits and companies cut back on spending. Governments may also potentially impose restrictions on what AI can and cannot do.
Although the business is doing great, Nvidia's stock may be too expensive to buy right now given the risk and uncertainty that still exists with respect to AI.
3. Dick's Sporting Goods
Shares of Dick's Sporting Goods are down this year, but since 2020 they are still up over 130%. Many retailers benefited from an uptick in spending during the early stages of the pandemic, and Dick's Sporting Goods is no exception -- the company reported sales of $12.3 billion for the year ending Jan. 31, 2022, which was a year-over-year increase of 28%. The previous year, the company's top line grew by less than 10%.
The company is experiencing a slowdown this year. But what's really hurting the business is retail theft. Shares of Dick's Sporting Goods nosedived in August after the company said theft was hurting its bottom line. The company admits it underestimated the impact shrink would have on its business. As a result, it had to lower its guidance for the year, and is now projecting earnings per share between $11.33 and $12.13, versus earlier guidance of $12.90 to $13.80.
At only nine times its estimated future earnings, this could be an excellent buy on the dip. Dick's pays the highest yield on this list at 3.6%, and could make for a solid dividend investment to buy and hold.
