Investing is often done best when it's kept simple. For the average person out there looking to boost their portfolio returns, this could mean putting on your customer hat and finding businesses that you already deal with. Not only does this allow you to lean on your own first-hand experience, but it limits the universe to companies that you probably understand very well.
This will undoubtedly lead you to the retail sector, which is extremely competitive. But it has produced some outstanding winners historically. In fact, there are two dominant industry heavyweights that have turned their longtime shareholders into millionaires.
Costco Wholesale
NASDAQ: COST
Key Data Points
The first millionaire-maker retail stock is Costco Wholesale (COST +1.08%). The company has produced a total return of 18,030% in the past 30 years (as of June 25). Had you made an initial investment of $5,600 in the summer of 1994, you would be sitting on a balance of $1 million today.
Costco's business hasn't changed much over the years. It sells quality merchandise at low prices in a warehouse-style setting. But over the past few decades, growth has been strong. The company currently has 876 stores scattered across the globe, with 594 of them in the U.S. That's up dramatically from 221 locations at the end of fiscal 1994.
Unsurprisingly, an expanding store footprint has led to healthy revenue and earnings growth, trends that continue today. In the latest fiscal quarter, comparable sales rose 6.6%, and diluted earnings per share jumped 29%.
One key part of Costco's success is that its customers must be members in order to shop at its stores. This entails paying an annual fee of $60 for the basic plan. From the customer's perspective, the membership more than pays for itself in the form of cost savings. And for Costco, this drives repeat purchase activity, while creating a high-margin revenue stream.
Before you rush to buy Costco shares, it's critical to understand the market's optimistic perception of the business. The stock has done incredibly well in the past five years, soaring 219%. But it's extremely expensive today, trading at a price-to-earnings (P/E) ratio of about 52. Add this business to your watch list for now.
Home Depot
NYSE: HD
Key Data Points
The second retail stock that has made millionaires is Home Depot (HD +0.19%). This retail juggernaut has generated a total return of 6,370% since June 1994, turning a $15,500 investment back then into a cool $1 million today.
Like Costco, Home Depot's operations don't undergo a lot of change. The company sells home improvement hardware and supplies through its physical locations to both DIY and professional customers.
About 30 years ago, Home Depot had 263 stores. It generated $9.2 billion in revenue in fiscal 1993. Fast forward to today, and there are 2,337 stores, with some in Canada and Mexico. The business brought in $151.8 billion in sales in the trailing 12-month period, well ahead of its smaller rival, Lowe's Companies.
Scaling up the revenue base has helped Home Depot post consistent profitability. The operating margin has averaged 14.2% in the past decade, boosted by the company's supply chain and omnichannel investments.
In fact, this helps the business generate so much free cash flow, even after reinvesting in its operations for growth, that management can afford to give capital to shareholders. In fiscal 2023, Home Depot paid $8.4 billion in dividends. And it repurchased $8 billion of outstanding stock. There aren't many companies out there with such a sizable capital return program.
After above-average growth during the pandemic's height, Home Depot has hit a temporary roadblock. Macro headwinds have pressured the business, with same-store sales down 2.8% in the latest fiscal quarter (first quarter 2024, ended April 28). But over the long term, the company should get back to solid top- and bottom-line growth.
