Snowball Effect Stocks for the Next 25 Years
A summary of results for the 7 real-life examples is below:
1. Lowe’s grew $1.00 to $108.49
2. Hormel grew $1.00 to $29.63
3. Colgate-Palmolive grew $1.00 to $28.85
4. Johnson & Johnson grew $1.00 to $24.46
5. P&G $1.00 to grew $16.54
6. MMM $1.00 to grew $15.43
7. Coca-Cola grew $1.00 to $15.25
For comparison, an investment in the S&P 500 as measured by the Vanguard 500 Index Fund (VFINX) – which has historical data back to 1990 – would have turned $1 into $9.61 for a compound return of 9.1% a year.
All 7 examples above trounced the market despite being well established businesses with long dividend histories.
But…
What stocks will be the next snowball effect compounders?
There’s no need to reinvent the wheel. Anyone holding the serial compounders above should continue to do so.
For those looking to enter into new positions in snowball effect stocks should look for the following:
1. Above average dividend yield
2. Below average price-to-earnings ratio
3. Long dividend history
The biggest constraint of the 3 is the long dividend history. We will start by selecting only from the Dividend Aristocrats List.
To be a Dividend Aristocrat a stock must have 25+ years of consecutive dividend payments and be in the S&P 500. There are currently just 50 stocks that match this criteria.
Out of the 50 Dividend Aristocrats, we will screen for:
1. A dividend yield oabove the S&P 500’s 2.1% yield
2. A price-to-earnings below the S&P 500’s ratio of 22.6
24 Dividend Aristocrats match these criteria. We will then sort these by expected total return. Total return is the expected earnings-per-share growth rate plus the current dividend yield.
The 10 highest expected total return Dividend Aristocrats with above market dividend yields and below market price-to-earnings ratios are listed below:
– Air Products & Chemicals, Inc. (NYSE:APD) expected total return of 10.8%
– T. Rowe Price Group Inc (NASDAQ:TROW) expected total return of 10.9%
– Procter & Gamble Co (NYSE:PG) expected total return of 11.2%
– Pentair plc. (NYSE:PNR) expected total return of 11.4%
– 3M Co (NYSE:MMM) expected total return of 11.7%
– Emerson Electric Co. (NYSE:EMR) expected total return of 12.5%
– Abbott Laboratories (NYSE:ABT) expected total return of 12.5%
– HCP, Inc. (NYSE:HCP) expected total return of 12.6%
– VF Corp (NYSE:VFC) expected total return of 12.8%
– Archer Daniels Midland Company (NYSE:ADM) expected total return of 13.3%
The 10 stocks listed above best match the criteria to best take advantage of the snowball effect.
‘Snowball stocks’ have strong and durable competitive advantages. Evidence of their competitive advantages is seen by their long operating history and consistent dividend increases.
Long-term investing in great businesses with shareholder friendly managements at fair or better prices will very likely produce compound wealth gains over time.
Remember the snowball effect when choosing your investments.
Disclosure: None
