Successful investing is not as complicated as some make it out to be. Sticking with the brands you use every day, and holding for many years, is a great place to start.
Top stocks, such as Apple (AAPL -0.35%), Starbucks (SBUX 0.47%), and Costco Wholesale (COST 1.01%), have a long record of beating the market's average return. The best part is that these companies are so consistent in generating profitable growth from their businesses that they dish out a steady stream of growing dividends to shareholders.
Let's find out more why three Motley Fool contributors believe these stocks are no-brainer buys for the next 20 years.
Apple has massive cash resources to fund a growing dividend
John Ballard (Apple): Investors shouldn't focus only on buying stocks with high yields, since companies that pay high yields are either struggling financially or lacking growth.
A smart way to build up dividend income you'll need for retirement is focusing on companies that offer dividend growth. A company that has a long record of raising its dividend payment usually reflects growing demand for the company's products. Moreover, a multiyear record of dividend increases reflects management's confidence in the future of the company.
Apple is a great example. Over the past 10 years, its annual dividend grew by 130%, or more than double its fiscal 2013 dividend payment. It has increased the dividend for 12 consecutive years, and because it only pays out 14% of its earnings, Apple can continue increasing the dividend even if earnings are down during an investment year or recession.
While the dividend yield on Apple stock is below average at just 0.49% right now, its yield could increase over the next two decades. If Apple doubles its dividend in each decade through 2043, investors who buys shares today could potentially earn a dividend yield on their cost basis approaching 2%. If Apple also doubles its payout closer to 30% of its earnings, the yield could approach 4%.
Apple has attractive long-term growth prospects. It should continue to grow through expanding its installed base of active devices, launching new products (e.g., Vision Pro in 2024), and continuing to expand its services business, which should be a great source of profitable growth to help fund future dividend increases.
The iPhone, which makes up half of the company's annual revenue, has made Apple one of the most profitable companies in the world. Apple generated $99 billion in free cash flow on $383 billion of revenue over the past year. The resources it has will pave the way for more new products, more profitable growth, and growing dividends for years to come.
A buy-on-the-dip dividend opportunity
Jennifer Saibil (Starbucks): Starbucks doesn't have any competition as the leader in coffee shops, and it's opening new stores, innovating with beverages, and making other important changes to keep its top spot.
The company hired a new CEO this year, and it's pivoting from its prior strategy as a sit-down-and-hang-out kind of place to its new iteration as digital coffee king. People today want to order and pick up, and Starbucks is right there with them. It has invested in new equipment to speed up ordering and fill demand for a quick cup, and it's already demonstrating success with these efforts.
In the 2023 fiscal fourth quarter (ended Oct. 1), revenue increased 11% year over year, with an 8% increase in comparable sales. While there are already more than 38,000 stores (seemingly one on every corner), the international market is still undertapped, accounting for only 21% of sales. Starbucks still sees a massive opportunity for more stores, both at home and abroad, and it's highly focused on the China region, its second largest.
Despite the inflationary environment, the company has increased net income and generated robust free cash flow. Earnings per share (EPS) rose 39% over the prior-year period in the third quarter to $1.06, and it generated $1.2 billion in free cash flow. This powers its innovation and operations, as well as a very attractive dividend.
Starbucks has paid -- and raised -- its dividend for the past 13 years, and over that time it has increased more than 1,000% in value. At the current price, Starbucks' dividend yields 2.3%, or well above the S&P 500 average of 1.6%.
As Starbucks continues to drive sales and generate cash, it should be able to amply fund and raise its dividend for years. Starbucks stock is down 2% in 2023, and now is a great time to buy shares and benefit from a growing passive income stream.
A reliable cash machine
Jeremy Bowman (Costco): Not many stocks are as universally admired as Costco. It has a loyal customer base that regularly flocks to its stores to stock up on bargain-priced bulk goods.
And, Costco has one of the strongest moats in retail, thanks to its membership model and reputation for high-quality products at great prices, and the company routinely ranks among the highest in customer satisfaction in the retail industry.
Not surprisingly, Costco has also been a great stock to own. Since its IPO in 1985, the stock has returned a whopping 71,000% -- and that's not including dividends.
Today, Costco's prospects for outperformance still look bright as the company has fended off threats from e-commerce and Amazon, continues to open stores both in the U.S. and abroad, and is growing through the e-commerce channel as well.
As a dividend stock, Costco might not look like a cash-returning powerhouse. Its dividend yield is currently just 0.65%. But the company has a long history of paying special dividends every few years of as much as $10 a share, and its next special dividend, which has been anticipated, could be even higher than that.
No matter what happens in the broader economy, in the retail sector, or on the technology front, Costco looks like a good bet to continue delivering solid, steady growth, returning cash to shareholders and making money for them. It's one of the easiest investments you can own for the next 20 years.
