Many folks are lured into the stock market by tales of getting rich quick through explosive growth stocks. But there's a far simpler, less stressful way of building generational wealth that also helps you rest easy at night. And that method is through investing in quality companies that have a track record of rewarding shareholders and, more importantly, have a long runway for future growth.
Here's why Apple (AAPL -0.35%), Deere (DE -0.18%), and Starbucks (SBUX 0.47%) stand out as three top blue-chip stocks worth considering now.
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Slowing iPhone growth won't derail Apple
Apple is experiencing something that investors aren't used to -- slowing growth. Its revenue and net income are flatlining. There are a few factors at play. Some are macroeconomic, like declining consumer discretionary spending and higher financing costs, which pressure consumers to spend within their means and delay big-ticket purchases.
AAPL Revenue (TTM) data by YCharts
Another headwind is that a lot of Apple's sales were pulled forward during the worst of the COVID-19 pandemic as consumers turned to goods purchases since service options were hindered.
Another fear is that incremental improvements in product performance won't be able to justify price hikes. iPhone sales are slightly declining. And Apple may not be able to raise prices as easily as it had in the past given a variety of competing products and a cost-conscious consumer.
The good news is that Apple's services segment has grown to become a high-margin cash cow. Last quarter, services revenue reached an all-time high. And for the nine months ended July 1, services contributed over a third of Apple's gross profit.
Apple also used buybacks to its advantage. It has reduced its outstanding share count by 37.4% over the last decade, which has artificially boosted earnings per share, making Apple stock a better value.
AAPL Shares Outstanding data by YCharts
All told, Apple has plenty of cash to keep investing throughout market cycles. And it can lean on its services segment and earnings-per-share growth from buybacks even if iPhone demand continues to stall. Apple has been a millionaire-maker stock. And there's every reason to believe it should remain a reliable investment going forward.
Deere: Poised to benefit from an agricultural revolution
Shares of Deere are down over 10% in the past month. But despite the sell-off, Deere is still crushing the performance of the S&P 500 over the past three-year, five-year, and 10-year time frames. After back-to-back guidance increases, Deere is on track to post record earnings in fiscal 2023. The growth has been incredible as Deere has benefited from increased spending from customers across its core markets. It has also demonstrated pricing power, which has helped combat inflation. And finally, the overall agriculture industry has been in a growth cycle.
To illustrate the sheer scale of Deere's growth, consider that fiscal 2023 full-year profits are expected to come in between $9.75 billion and $10 billion compared to just $2.8 billion in fiscal 2020. But the stock market is always forward-looking. And the fear is that future growth will certainly stall or even be negative, given that Deere operates in a highly cyclical industry that just underwent a period of expansion.
However, Deere deserves credit for accurately forecasting customer demand and making product improvements that customers want. It is also entering fiscal 2024 with a healthy amount of inventory, so it won't be hung out to dry if demand slows faster than expected.
If we zoom out and focus on the big picture, there's every reason to believe that Deere has what it takes to continue compounding returns for investors. Like Apple, the company pays a rather small dividend and prefers to return value to shareholders through buybacks.
Deere also has plenty of long-term growth outlets. Deere is betting big on the growing importance of automation and artificial intelligence in the agriculture and construction industries. A few strong years of outsized returns have given Deere extra dry powder to fund these opportunities.
Even if earnings come down, Deere will still be a reasonably priced stock. But the best way to view Deere is through the lens of its long-term investment thesis, which centers around a strong and established brand, effective execution, and an attractive and growing product mix that increasingly relies on software. Investors who believe in the growing importance of technology in the industrial sector should take a closer look at Deere stock.
Starbucks and the era of fast coffee
Starbucks has spent the last decade or so transitioning from a top growth stock to a reliable dividend stock. As evidenced by its buybacks, Starbucks is directly returning value to shareholders and has plenty of extra cash to repurchase shares.
However, one of the more underappreciated aspects of Starbucks stock is its dividend. Starbucks just raised its dividend to a record high. The dividend has more than doubled in the last six years.
Starbucks' dividend growth is outpacing the growth in its stock price, which has allowed the forward dividend yield to increase to 2.5%. It's not a high-yield dividend stock by any means. But Starbucks' steady growth, paired with its commitment to its dividend, opens the door to a reliable passive income stream that could last a lifetime.
Unlike Apple and Deere, which are facing periods of slowing growth, Starbucks has exited a pandemic-induced downturn in its business and is firing on all cylinders. Starbucks Rewards member additions during the pandemic have proven sticky, and Starbucks continues to grow its rewards program and its mobile ordering at a torrid rate.
Starbucks helped pioneer the cozy coffee house/internet café business model in the U.S. However, the future of Starbucks will likely look far different. Starbucks is no longer the only game in town. It has to compete with a swath of cool coffee shops, many of which arguably do a better job with ambiance than your typical Starbucks. But Starbucks can gain an edge over the competition through convenience, customization, and speed. The rewards program and mobile pickup feed into Starbucks' strengths.
This new chapter for Starbucks will likely result in more small stores focused exclusively on mobile ordering. And we've already seen a heightened focus on drive-thrus to boost order volumes. In sum, Starbucks has a massive opportunity ahead of it that should drive earnings growth, and in turn, a rewarding dividend.
Roadmaps for future growth
Apple, Deere, and Starbucks are in completely different industries. But all three companies have executed sizable stock repurchase programs. They also each represent a leading brand in their respective industries. Each company also has a well-defined path toward future growth -- which is essential for supporting future buybacks and dividend raises.
All told, these are three quality companies that are worth owning for many years to come.
