Ronald Read was a janitor and gas station attendant who retired and amassed a net worth of $8 million by the time of his passing. His wealth came from living below his means and investing in high-quality stocks for decades.
You can read his story, but what's most important is that you can do it too! Investing in blue-chip companies and letting them grow and pay you dividends for years at a time allows compounding to do its best work for you.
However, you need to get the stocks right. I've searched high and low to find these three stocks with the growth, powerful brands, and profits to create wealth for you over the years ahead.
Image source: Getty Images.
1. Nike
Apparel and footwear company Nike ( NKE 4.68% ) is one of the most well-known brands in the world. Sports goes beyond culture and economics, making Nike a brand with true global appeal. Nike has apparel deals with several major sports organizations, including the National Football League, Major League Baseball, and National Basketball Association. It also has many of the sporting world's most prominent names in sponsorships, including LeBron James, Cristiano Ronaldo, Tiger Woods, and Michael Jordan.
Nike has been one of the world's best stocks since its IPO in 1980, returning more than 112,000% over the past 42 years. But Nike's growth days don't seem over yet. The business has been growing revenue by an average of nearly 8% annually over the past decade.
More importantly, Nike is very profitable. It generates billions in free cash flow each year, which it uses to repurchase shares and pay a dividend. The repurchases have helped earnings per share (EPS) grow faster than revenue, averaging more than 12% per year over the past 10 years. Meanwhile, Nike has raised its dividend for the past 20 years, so it's a likely future Dividend Aristocrat. Digital sales strategies and opportunities in emerging markets worldwide could put Nike in a position to excel for years to come.
2. Dollar General
Discount retailer Dollar General ( DG 1.38% ) is a perfect example of a simple business model that produces excellent results. Dollar General sells low-cost items at its stores, which the company strategically stands up in rural and low-income areas. There is nothing about the business that competitors can't copy, and indeed there are other "dollar stores" across America.
But Dollar General's high level of execution sets it apart. The company sports an operating margin of more than 9%, superior to Walmart's 4% to 6%, which many investors might consider the ultimate retail business. There are thousands of rural communities in America, often too small to justify a more significant competitor (like Walmart) setting up a store. Dollar General has been averaging 900 new stores over the past three years. The expansion fuels revenue growth, which has averaged almost 9% over the past decade, while EPS has averaged 16% over the same time frame.
Dollar General has no problem generating enough free cash flow to give money back to shareholders. The company steadily repurchases shares and has paid and raised its dividend for the past seven years. Dollar General seems to be a company that's proven its business model works and is simply expanding its footprint. As long as stores keep opening and revenue grows, investors seem poised to benefit.
3. Domino's Pizza
Pizza restaurant chain Domino's Pizza ( DPZ -1.25% ) is one of the most dominant restaurant brands in the world, and it holds a whopping 20% market share of the global quick-service pizza industry. Is Domino's Pizza the world's best pizza? I'd probably say no, but the pizza's good-enough quality, low price, and convenience features (like a smartphone app that makes ordering easy) have proven to be a winning recipe.
The business has grown revenue by an average of 10% annually over the past decade, growing EPS even faster, 23% on average during that time. Like the other two stocks on this list, Domino's is a healthy and profitable company generating millions in free cash flow, which funds share repurchases and a dividend. The company has paid and raised a dividend for the past nine years and looks like an eventual Dividend Aristocrat in its own right.
Domino's has produced positive same-store sales growth in 18 out of the past 22 years in its U.S. stores and every single year in international locations. The stock also has a $14 billion market cap, making it smaller than many other global restaurant chains. While the company's been facing some short-term challenges, its proven business model could continue winning in the long run.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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3 Stocks That Could Create Lasting Generational Wealth - The Motley Fool
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