Over the past 50 years, the S&P 500 has historically delivered a total annualized average return that hovers around 10%. That return also approximates the average company's earnings growth over the long term. It follows then that if you want to beat the broader market's return, you should focus on stocks that are fairly priced and have above-average earnings growth prospects.
Investing in growth stocks is the easiest way to beat the market, but fast-growing companies usually don't pay dividends. For investors interested in collecting passive income while also earning strong stock price returns, the number of options narrows quite a bit. But there are still some stocks that qualify. Here are two such dividend stocks you might want to consider.
1. Starbucks
Starbucks (SBUX +1.44%) stock price jumped recently on the news that the chairman and CEO of Chipotle Mexican Grill, Brian Niccol, will become Starbucks' new CEO. Chipotle is a top-performing global restaurant stock, and his leadership is cited as one of the reasons. There is hope that Niccol could deliver market-beating returns for Starbucks shareholders.
Starbucks has been navigating a challenging consumer spending environment over the past couple of years, but its brand is still strong. While global comparable sales fell this year, Starbucks continues to open stores and grow its loyalty program, with membership up 7% year over year last quarter to 33.8 million.
Starbucks is the highest-ranked restaurant brand in the world, with Brand Finance placing the company at No. 15 on its most valuable global brands list for 2024. The consumer awareness for the brand could pay dividends as it looks to fill out the market in smaller cities, where management still sees substantial growth potential.
Despite weak sales this year, margins remain healthy, with net profit margin of 11% over the last four quarters. The company's consistent profitability funds a growing dividend, and Starbucks currently pays over 60% of its annual earnings in dividends. The quarterly payment sits at $0.57 per share and, with the share price down, the forward dividend yield has been elevated to 2.46% -- the stock's highest yield in years.
NASDAQ: SBUX
Key Data Points
Starbucks' stock has underperformed the S&P 500 index over the last five years. However, the next five years may tell a different story, considering that Niccol successfully navigated Chipotle to steadily improving margins that drove outstanding returns for investors.
The stock trades at a price-to-earnings ratio of 26, which is a discount to the S&P 500's average P/E of 29. It's a good bet that Niccol will guide Starbucks to its previous annual earnings growth target of 15%. Assuming the stock continues to trade around a 25 P/E, and Niccol improves Starbucks' margins, the stock could easily double in value by 2029 while also paying out an above-average dividend.
2. Casey's General Stores
Investing in a chain of convenience stores may not sound all that exciting, but the returns that Casey's General Stores (CASY 0.51%) manages for shareholders certainly do. The company's return has doubled that of the S&P 500 over the last decade. With dividends reinvested, investors would have earned a total return of 478% since 2014, compared to 239% for the S&P 500.
NASDAQ: CASY
Key Data Points
Casey's General Stores is profitably expanding across the country. It operates over 2,600 stores, and it's been steadily growing for over 50 years. The company began paying regular dividends in 1991 and recently increased its quarterly dividend by 15% to $0.50 per share, bringing the forward yield to 0.54%. At that rate of increase, an investor's yield would double in five years to over 1% from the current share price.
This is a sold business with inherent competitive advantages. When people pull into one of its stores looking to fill up, there's usually an incentive to make impulsive purchases for beverages, food, and other items that can be very margin-accretive for a large chain like Casey's. Casey's is known for its freshly prepared food, especially pizza. It actually qualifies as the fifth-largest pizza chain in the U.S.
Casey's has delivered annualized growth in earnings per share of 15% over the last 10 years. Over the last year, earnings grew 13%, and the company's store opening potential should spell more growth ahead.
Casey's is targeting at least 350 new stores from fiscal 2023 through fiscal 2026. It plans to accelerate its food business and improve operating efficiency, which all points to more earnings growth. Wall Street analysts expect the company's earnings to grow at an annualized rate of 13%.
Importantly, the stock trades at a reasonable forward P/E of 26. Assuming the stock continues to trade around the same P/E multiple in five years, Casey's should deliver annualized returns close to its future earnings growth, which should be enough to outpace the index.
