Investing involves parking money in strong, well-managed stocks to see it grow steadily into a larger sum over time. You need patience and tenacity to allow your investments to compound your money so you can enjoy a comfortable nest egg when you're ready to retire. To do so, there are two things you need to do.
One is to sock away money in growth stocks that can see their value rise in years and decades as they grow their earnings and cash flows. The other is to build up a stream of dividends by investing in dividend stocks to enjoy a flow of passive income.
Hence, you must look for stocks that have a mix of both attributes within your portfolio. Growth stocks need to have a long growth runway and possess sustainable catalysts that allow for multi-year growth. As for dividend stocks, you should look for a long track record of rising dividends and companies with strong, durable franchises that can enable them to continue their payments in the future.
With the above attributes in mind, I am confident that smart investors will find these three stocks attractive for their investment portfolios.
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1. Adobe
Adobe (ADBE 0.87%) is a diversified software company that offers a software-as-a-service (SaaS) platform for delivering digital experiences. Its Document, Creative, and Experience Cloud products are used by a wide variety of customers for design, customer relationship management, and marketing campaigns, among other uses.
Adobe saw its subscription revenue shoot up from $11.6 billion in fiscal 2020 (the company has a Nov. 30 year-end) to $16.4 billion in fiscal 2022. Total revenue rose in tandem from $12.9 billion to $17.6 billion over the same period. Net income, however, weakened from $5.3 billion to $4.8 billion, principally due to higher tax provisions. Free cash flow remained strong and rose steadily from $5.3 billion in fiscal 2020 to $7.4 billion in fiscal 2022.
Adobe announced record revenue for its fiscal 2023 third quarter as the software company infused artificial intelligence (AI) into a variety of products. For the first nine months of the fiscal year, revenue increased by 10% year over year (YOY) to $14.4 billion, while net income increased by the same proportion to $3.9 billion.
In July, Adobe launched Firefly, its family of creative generative AI models, to enable users to generate both text and images in their native language with support in over 100 languages. Firefly has been integrated into Adobe's Photoshop, Express, and Illustrator products, while another of its generative AI products, Adobe Sensei, has been incorporated into its Experience Cloud platform. These AI-infused products should make Adobe's suite of products even stickier for customers and will help the company attract more customers to its platform.
Adobe intends to host its Investor Day on Oct. 10 to discuss its strategy and demonstrate its roadmap for AI and its other products.
2. Domino's Pizza
Domino's Pizza (DPZ 0.87%) is one of the largest pizza chains in the world, with more than 20,000 stores in more than 90 markets. The food and beverage company did well throughout the pandemic as it continued to grow its revenue and open stores around the world.
Revenue rose from $4.1 billion in 2020 to $4.5 billion in 2022, but net income fell from $491.3 million to $452.3 million over the same period because of higher cost of goods sold amid supply chain snarls. Domino's store count, however, increased from 17,644 in 2020 to 19,880 in 2022, with an addition of an average of 1,000 stores internationally every year. Importantly, the business generated positive free cash flow in all three years, and saw its annual dividend rise from $3.12 per share in 2020 to $4.40 per share in 2022.
The positive momentum has carried on into 2023, with the company reporting a strong first-half result. Although revenue dipped slightly by 1% YOY to $2 billion, gross profit inched up 5% YOY to $790 million, while net income rose 11% YOY to $214.2 million. Domino's Pizza also saw its free cash flow soar 85% YOY to $204.3 million, supporting the 10% YOY increase in its quarterly dividend to $1.21 per share. Same-store sales growth for both its U.S. and international stores came in positive at 1.8% and 2.3%, respectively, for the first half of 2023.
The global quick-service restaurant pizza industry is worth $81 billion and is growing at low to mid-single digits, offering Domino's Pizza ample opportunity to grow its market share and presence. The company also recently enhanced its loyalty program to offer customers more opportunities to earn and redeem points across all its outlets, helping to strengthen customer loyalty as it seeks to open more stores around the world.
3. Tractor Supply Company
Tractor Supply Company (TSCO 3.26%) touts itself as America's largest rural lifestyle retailer. The company operates close to 2,200 Tractor Supply stores in 49 states. It also owns and operates pet supply retailer Petsense, which has 192 stores in 23 states.
Tractor Supply has demonstrated steady growth throughout the pandemic years as more people tended to their farms and homes during this period. Revenue rose from $10.6 billion in 2020 to $14.2 billion in 2022, with net income surging by 45% over the same period to $1.1 billion. The annual dividend has also more than doubled, from $1.50 in 2020 to $3.68 in 2022 as the business generated positive free cash flow in all three years.
The positive momentum carried on into 2023, with Tractor Supply reporting an 8% YOY increase in revenue to $7.5 billion for the first six months of this year. Operating income rose 5% YOY to $803.8 million, while net income inched up 4% YOY to $604.3 million. The quarterly dividend continued to rise, going from $0.92 per share in 2022 to $1.03 per share this year.
The business continued to churn out positive free cash flow, and management announced a new long-term target of 3,000 stores in the U.S. with plans to increase annual new store openings to 90 per year (previously 80).
CEO Hal Lawton believes the company has significant growth potential in a sector with a total addressable market of more than $180 billion. Tractor Supply's loyalty program Neighbor's Club is also seeing strong traction with the addition of more than 5 million customers in the past year. The program ended Q2 2023 with more than 31 million members, a sharp jump of around 10 million members over the past two years.
