The goal of every investor is to grow wealth. Ideally, a small investment in a stock will bring gains in year after year (and eventually decade after decade). This is a simple, tax-advantaged, and time-tested strategy to build your wealth. The hard part is finding the right stocks to buy.
A stock that turns $1,000 into $1 million, a 100,000% gain, is a home run. To help identify stocks that may put up such life-changing returns, take a look at two stocks that have done it in the past.
1. Altria Group: Consistent dividend growth
The first stock is one of the best-returning stocks of all time: Altria Group (MO 0.70%). It's the owner of Philip Morris and Marlboro cigarettes. Since 1972, Altria Group has posted a cumulative total return of 4,299,000%. That's right, it has gone up by more than 1 million percent for shareholders when dividend reinvestments are factored in.
NYSE: MO
Key Data Points
Now, 1972 was after the peak of cigarette usage in the United States. In every year since, the percentage of the United States population that smokes cigarettes has declined virtually every year. But even going from 1998 -- when cigarette companies signed the Master Settlement Agreement for making misleading health claims -- Altria Group stock is up 12,540%. Why? Because of consistent price increases. These have helped counteract volume declines and grow earnings for the company.
Another factor is the stock's discounted price. The stock has typically traded with a high dividend yield due to fears of cigarette volume declines. Investors who bought at these high yields have been able to turbocharge returns by reinvesting these growing dividend payouts every year. Today, the stock trades at a cheap price-to-earnings ratio (P/E) below 9 and a dividend yield of close to 7%.
The lesson from Altria Group? Pricing power and reinvesting dividends are a strong combination for generating life-changing returns in the stock market.
MO Total Return Level data by YCharts
2. Costco: The best shopping model in the world?
Costco (COST +1.58%) has rarely traded at a low earnings multiple or a high dividend yield but has still generated a 155,000% return for shareholders since going public in 1984. Key to its returns is the company's reinforcing competitive advantage.
Costco uses a warehouse membership model. Customers pay a membership fee of around $100 a year to shop at Costco warehouses. Through ruthless negotiating with suppliers, no frivolous spending, and the discipline to take only a slim margin on every item sold, Costco is able to offer a lower price than any other retailer (unless that retailer wants to run its operations unprofitably).
NASDAQ: COST
Key Data Points
The more warehouses Costco opens, the more it can apply these scale advantages and build a better value proposition for its customers. The company now has just under 1,000 warehouses worldwide and generates a staggering $264 billion in annual revenue. This is a scale that is virtually impossible to compete with, except for Amazon and Wal-Mart.
Today, Costco trades at a P/E ratio of 52, which is much higher than Altria Group's. However, it highlights another way that investors can generate life-changing returns: multiple expansion. When you combine Costco's steady earnings growth with Wall Street giving it a higher multiple compared to decades ago, that is a double whammy of returns that have made Costco investors rich.
Costco and Altria Group show two different ways for a stock to turn $1,000 into $1 million. Use these case studies to look for stocks with the potential to generate life-changing returns for your portfolio.
